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http://www.Options-Trading-Education.com - Natural Gas Options Trading - A brief rally in natural gas options trading was snuffed out recently. High levels of natural gas production have driven prices …
http://www.Options-Trading-Education.com - Natural Gas Options Trading - A brief rally in natural gas options trading was snuffed out recently. High levels of natural gas production have driven prices down. It has been an unusually mild winter in North America and a number of natural gas suppliers have announced reductions in production. The prospect of reduced supply has encouraged commodity options traders to buy calls on natural gas futures. The prospect of reduced demand encourages traders to purchase puts. Although companies such as ConocoPhillips are reducing output, Exxon Mobile is not. The United States Department of Energy data indicates historically high levels of production. New technology allows for extraction of natural gas from shale formations in previously tapped out areas of the Northeastern USA and along the Gulf Coast. Prices of puts and calls in natural gas options trading also hinge on economic forecasts and if the ever so slow US economic recovery gets into high gear, demand could rise followed by natural gas prices. As with all commodity futures options trading, accurate appraisals of both supply and demand are crucial to profits.
Because energy products are produced and trade throughout the world issues such as the most recent aspect of the Arab Spring, the uprising in Syria, have a bearing on prices. Likewise, the painfully slow resolution of the Greek debt crisis is dragging down expectations of any early economic recovery on the continent. Further unrest in the Middle East could spread throughout oil and gas producing regions, driving down production and driving up prices. A prolonged recession in Europe will drive down demand and natural gas prices as well. The long term view in natural gas options trading has been that production is up and demand is down and that it will not change soon. Natural gas futures have fallen to just over eighty percent of their previous values in just the last month. US DOE reports show that Alaskan production is up almost fifteen percent to record production levels. There are estimates of natural gas prices falling substantially farther in 2012. If this turns out to be the case, when to buy puts on natural gas may be now. On the other hand producers could scale back, the Middle East could settle down, and Europe could fix its debt dilemma.
The advantage of natural gas options trading on futures instead of trading futures directly is twofold. First of all an options trader limits his risk by buying puts or calls on a commodity or stock. The most he stands to lose is the price of the options contract, even if futures prices move unexpectedly and dramatically opposite to what he expects. Second, in natural gas options trading, the trader is using less money than would be required to satisfy the purchase of a futures contract. Nevertheless the movement in futures price will be the same in buying or selling futures directly or in natural gas options trading on futures.