Natural Gas Back To Widowmaking? – ValueWalk Premium
Natural Gas

Natural Gas Back To Widowmaking?

Article by RCM Alternatives

While natural gas over much of past 4 years has been about as fun as watching paint dry – staying mostly in a range between 2.50 and 3.50, it has picked up in activity as of late, shooting up about 17% today behind some cold weather in the Northeast. It was enough to get Josh Brown tweeting:

Now, Natural Gas used to be one of the most volatile markets around, with the market (and particularly the infamous March/April spread) lovingly known as the widowmaker by many in the industry for the sharp price moves it has been known to have, making widows out of many trader’s wives (I guess the metaphor goes…) as they take killer losses due to the out-of-nowhere volatility. This is the very market and trade that caused one of the biggest hedge fund blow ups of all time in Amaranth Advisors, who lost a few billion betting on Natural Gas movements, either ignoring or not knowing days like this one happen:

Natural Gas

Natural Gas

But since fracking became a thing and all commodioty prices took a hit following the 2008 financial crisis, we’ve essentially been on the low side of the historical prices in a range between 2.00 and 6.00, even causing us to wonder if Natural Gas was one of the flight to quality investments a few years ago – along the lines of the Japanese Yen where you think: “it can’t go any lower”.

Well, as often happens in commodities (although not as much as systematic macro and managed futures hedge funds wouldl like thiese days), periods of high volatilty and 17% spikes tend to come out of periods of compressed volatilty and a lack of such spikes. It’s like the markets lull you to sleep, before jumping to a new paradigm.  For those on the short side of this trade, we hope your models incorporated some of the historically high volatility of Nat Gas and didn’t have too much risk on. For those on the long side = congrats! We’re seeing a few of the trading programs on our books, including Emil Van Essen [https://www.rcmalternatives.com/2018/06/mastering-mlp-madness/] and Resolve Asset Management [https://www.rcmalternatives.com/2018/04/three-alternative-funds-walk-into-a-bar/]  long Natural Gas and enjoying the move higher. Watch the reverb, fellas!

A host of Nat Gas talk from our archives:

Natural Gas Near All Time Lows – RCM Alternatives

Natural Gas Volatility Explodes…. Again! 

Natural Gas Volatility Exploding  https://www.rcmalternatives.com/2014/01/natural-gas-volatility-exploding

Back in March, Natural Gas was stuck in a trading range of between $2 and $6 for 5 years.

The impressive decline of the spread between Crude Oil and Natural Gas in 2012.

We stack up and compare Nat Gas average daily moves percentages with largest daily move percentages.

Someone (who wanted to remain anonymous) with 35 years of experience in the natural gas industry, shares his insights.

The yearly performance of Natural Gas Futures along with the other futures contracts back in 2011.

Would T. Boone Pickens natural gas legislation provide more supply to the industry, and therefore push down prices, or would the markets not follow supply and demand rules?

Would the T. Boone Pickens legislation change the landscape of not only the natural gas industry, but also the Crude Oil industry as well? Look and find out.


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