Thanks Grant<

"I am long one contract /NGN9 @ 2.600. I have sold a 2.650 call /NGM9 against that expires May 28th and collected $230 in premium. My plan is to hold the position until the call expires and then sell the contract. If the price of NG goes past my call strike I will get out when that happens."

So ideally, you want natural gas to go up .............very slowly so that the time value in your option drops and the futures prices going up causes your NGN9 to increase in value. You can actually afford for it to go up as much as 1,500/contract, above which price your  call option will be in the money and any continued increase in the the futures will result in a loss in your short call that is about the same as your gain in the futures. 

Ideally, with an expiration near the strike price, you could be ahead 1,500 + 230.

If the price of futures does not change, you net 230.

The risk is if the futures crash lower. You can still break even as long as NGN9 is above 2.577. We are currently at 2.566 NGN.  This is some very major support. The contract low for NGN9 was 2.560 set May 10,  2018-last year, before we violated that yesterday, trading down to 2.550. 

This is contra seasonal weakness from massive supplies hitting the market. 

I am not sure how much lower that we can go. The weather is not powerful enough in late April to be so dominant as to have a strong opinion but  heating degree days have greater potential than cooling degrees to move the market for another 3 weeks or so which is when they are almost the same. Mid May is when, seasonally, the CDD's really take over. 

Ideally, we would have a pattern with cold north and very warm south to maximize both of them..........and we do have that but it still doesn't generate the same level of demand that one would see from just a couple of months ago with just the HDD's/cold.

With the expiration of the NGK coming up, we might see some sort of a spike ahead of that.  Not a prediction but it happens fairly frequently. 

Another item related to that, if the cash prices are a great deal higher or lower than the front month expiring, they can sometimes pull them up or down. NGK expires on Friday.  Not sure what cash prices are right now.

Lots of great info in that response. Thanks. As we enter May this mornings ensembles are giving slightly mixed forecasts. The GFS looks a little warmer and the EURO is cooler. But as you say, weather will probably not play a huge role in driving the price the next few weeks. This is the first trade where I really studied the long range forecast and natural gas storage. The spot price was very low so I went long. I'll keep you up to date. Still learning a lot from you guys. 

Appreciate you sharing your interesting trade with us Grant.

Another item that can be a factor close to expiration is if the front month is loaded with huge longs or shorts that have to cover. 

One might guess that big funds are heavily short and have been adding but maybe there are some that are short with 2 days of trading left and need to get out.

Or just a magnified short covering effect because volume has dried up to almost nothing and there aren't many big entities taking the opposite side at prices close to the market...........so you have to work hard and bid up to much higher prices to get the same amount bought then you would have a week ago when there would have been numerous sell orders much lower and closer to the market. 

Well, it spiked up today so I sold my contract for a nice gain. Hoping the July price drops closer to 2.60 next week and if so, I'll buy another contract. 

Congrats on a great trade Grant and thanks for sharing it!

I was able to go long again @ 2.619 and sold this morning for a nice gain. Hoping it drops again tomorrow after the supply report and if so, I'll go long again. 

Wonderful. Looks like you have a knack for trading natural gas. 

I was surprised this morning to see how high /NG went up. I thought the weather forecast was rather benign and would keep the price down. I like what Larry had to say in the Natural Gas thread about the producers.