There is not much going on today. Â
Not much news to speak of other than Central Banks in Europe raising rates, which sent the Dollar lower, which repriced Equities higher overnight. As I had predicted for our Members yesterday morning, Brent Crude (/BZ) topped out at $85 early this morning and that was our signal to short West Texas Oil (/CL) at $78.50. In the Live Member Chat Room I said:
“We’ll see if Brent can get over $85 but it’s probably a good shorting line (should be a bit less than $79 on /CL). If we hit $80 I have to pick up a short there.“
That’s a good trick for playing Oil Futures: You may not have a good point of resistance on /CL but perhaps /BZ is coming up on one you can use – or vice versa. The same can be done with Apple and the Nasdaq or even certain sectors that are heavily influenced by a single stock. Â
We are still long on Natural Gas (/NG), of course but now we’re playing the April (/NGJ23) contracts at $2.45, which they are back to this morning. Those contracts came down 0.25 ($2,500 per contract) since early yesterday morning so we’re expecting a nice bounce today. Â
For the longer-run, there are 264 Regasification Terminals proposed or completed in the World. 79 of the open receiving terminals and 57 of the planned receiving terminals are in Asia and 42 open and 32 planned are in Europe – that’s 210. There are only 139 Liquefaction Terminals proposed or completed and Africa has 16 in operation, Asia 19, Central/South America 4, Europe 3, Middle East 14 and US has 9 – and one of them has been down for a month. Â
That’s why /NG is so cheap at the moment – a combination of a mild winter and 10% of our exports off-line is causing a surplus in the US but notice that 33 new export terminals are planned, 6 more are proposed and 10 are already under construction – which will double our export capacity over the next two years. By the end of this year, exports are expected to be up 50% over last year. Â
That’s why /NG was speculated all the way up to $9 early last year but the reality of how long it takes to build and permit the terminals (/NG is kind of explosive) along with the pipeline issues began to cool off the speculators and then Freeport LNG in Texas shut down due to an explosion in June, which meant that all the gas that was set for export was now flooding the US markets. Freeport expects to restart in March. Â
When Freeport comes back online (along with some new terminals), our exports will skyrocket and /NG prices should begin to climb. As you can see from the series below, production has been steadily ramping up to keep up with export demand but then we had the sharp drop in exports that did not affect production so – SURPLUS! Â
We are not, however, that far up in our storage range and things should be back to “normal” by summer, which is only 4 months from now. That means, in addition to playing the Futures long, we like the Natural Gas ETF (UNG), which we already have in our Short-Term Portfolio (STP) as: Â
It’s less than what we paid now with a net $10,300 credit on the entry for this $50,000 spread. Given the drop though, as a new trade idea, I would rather go with a lower spread: Â
-
- Buy 100 UNG 2025 $5 calls at $4.70 ($47,000)
- Sell 100 UNG 2025 $10 calls at $3.20 ($32,000)Â
- Sell 30 UNG 2025 $10 puts at $4.10 ($12,300)Â
That is net $2,700 on the $50,000 spread and there’s $47,300 (1,751%) upside potential if UNG gets back over $10 into early 2025 – when more and more terminals will come online. Notice in the above chart, production since 2020 is only up 20%. That means it’s very likely that demand will exceed supply in 2025. Â
In our STP, we are going to spend net $1.52 ($15,200) to roll our 2025 $10 calls to the $5 calls, which doubles the upside potential but, even at $10, we started with a $2,000 credit so we end up in that spread for net $13,200 and we’d make $36,800 (278%) at $10 and another $50,000 if we hit $15 – that’s not bad for a fallback plan, is it? Â
Why do we care so much about Natural Gas today? Because it’s cheap! When something gets cheaper than it should be, we check our Fundamentals and, if our premise holds up (we think $4-5 is the natural range for /NG, long-term), we then look for the best ways to invest Â
We’ll look for a few more opportunities in our Live Member Chat Room, including one of our favorite Dividend Stocks! Â
Today I did have a closer look at two stocks ENVX and DFLI, both are in the development and improvement of Lithium Batteries, mainly for the new wave of E cars. Both stocks are speculative, with great potential, but only for funds, which in the worst case you are prepared to lose part or even the complete investments.!!! As they are still in their development stage, sales and cash flow are still negative.
ENVX is trading at 8.57 and the trading range for the last 52 weeks was 26.30 to 6.50.
For slow starters I start to sell 10 Jan 25 7.5 puts @ 3.20 to 3.30. or 3200.00 to 3300.00 credit.
Thinking positive I set up as well a BCS 5/12.5 at a cost of 2200.00 also x 10. So at the worst case I lend up with 1100.00 in cash and 1000 stock at 7500.00. This is my max loss (6600.00) against a max profit of 8600.00, starting with a credit of 1100.00$.
DFLI trading at 6.93 has only options until Nov. 23. Again the financial position just having started is still negative. In both cases the question is can they bring their product to market before they run out of cash. Not to forget that fierce completion is always just around the corner.
DFLI had a trading range of 28.70 to 6.50 over the 52 week period. Here I start with selling 5 of the Nov 23 5put @ 2.75 to 2.80, break even 2.20. for a credit of 1400.00. At worse I am the owner of 500 shares at 5$ or 2500.00. if they go down to zero I would have lost 1100.00 my risk!!!
I can see a future in Lithium batteries, haven bought them even for my RV at a healthy price, but 50% lighter than a lead battery. So if you ever think of buying an E car you need a good and light battery.
We looked at ENVX in the chat last week. As far as I know, ENVX is for wearables and smartphones/laptops, they aren’t really looking at EVs. CEO is ex-SPWR.
Also, keep in mind that Silicon Lithium-ion batteries are, by definition SiLi…  😋 
DFLI is at $300M at $8.70 but they were below $7 last week. They seem a little pump and dumpy so be careful. I’m also not a fan of companies that make no money but the CEO pays himself $1M (and stock options).
Talking about Lithium, LAC just won a significant approval for Thacker Pass. It is a project supported by the Trump and the Biden admins; and is now the largest Lithium source in North America. GM has already taken a stake in the project, and LAC is assured Lithium sales to GM (and I think other end users are going to end up buying up Lithium companies now). (See here)
The lawsuit was pretty interesting. It comes from last years Rosemont ruling, where the Court said that while miners have a right to mine in public lands known to contain reserves, they do not have a right to use public lands that are not known to contain reserves – so in this case, LAC cannot have a waste pit on public lands unless that waste pit location is also known to contain Lithium. So now the Bureau of Land Management (BLM) has been asked to conduct more studies to confirm that Lithium is present throughout the Site (should only be a few months).
Phil – what do you think of LAC for a speculative bet. Option premiums are very high (as expected). I think LAC and BLM should be able to find another parcel of land that contains Lithium easily for auxiliary use by LAC.
Total Global Lithium Production is 100,000 tonnes, 50% from Australia, 26,000 Chile, 14,000 China, 6,000 Argentina. Total US production is 900 tonnes. Thacker Pass is a volcanic lithium deposit that supposedly has 13.7M tonnes and they expect an extraction rate of 66,000 tons per year.
Thacker Pass would use a newly-developed process to extract lithium from the clay deposit.[10] Usually lithium is mined by either hard rock mining or brine mining.[10] This mine will use hydraulic shovels to remove the clay and turn it into a slurry.[10] Non-lithium-containing sand and rock will be separated and immediately returned to the pit.[10]: 1 The lithium-bearing clay slurry would be mixed with sulfuric acid to extract the metal.[10] A plant would be built on-site to burn molten sulfur and produce sulfuric acid, which is safer than transporting sulfuric acid, and would result in one third the number of truckloads necessary.[10]: 1  Sulfur is a byproduct from oil refineries,[10] and may be sourced from as far away as the Aberta oil sands.[11]: 1  The facility would produce 5,800 tons of sulfuric acid per day, requiring 75 semi-trucks of molten sulfur to be delivered daily from Winnemucca. Burning the sulfur to produce sulfuric acid is an exothermic reaction, allowing the plant to generate most of its own electricity.[10]
After the slurry is reacted with sulfuric acid, it will be pressed through filters which separate the elemental lithium solution, and then processed into lithium carbonate or lithium hydroxide for batteries.[10]: 1  The tailings will then be returned to the pit. (The mine will use a process called “block mining”, whereby previously excavated sections get filled with tailings as the operation progresses.)[10]: 1 
So 66,000 tons is a 66% increase in the global supply of lithium and that will put us well ahead of demand for most of the decade so prices will likely come down (good for the storage industry) which means I’m not too excited to invest as the start-up costs are tremendous and the profits may not come until the 2030s.
Good Morning.
Good morning!
This is for the STP:
Earnings are still 50% red: https://www.briefing.com/calendars/earnings?Filter=Yesterday
Remind me to look at PDS later – Revenues were up 73% but they only made 0.27/share, which was miles less than expected ($3.68) but they confirmed guidance for 2023 with a $238M projected profit and, despite the now-$67 share price, they are practically a penny stock with a $900M valuation.
MT looks good. AZN better-looking than I thought. MSG doing fantastic. PM way better than MO. THC bet by 10% but guided lower.
This morning looks like another no-volume rally followed by volume selling so far.
Would you advise paying more than $1.52? Currently, the UNG roll is around $1.75-1.83
I would offer each side at the suggested price (no more than 1/4 at a time) and give them a chance to fill. If the longs fill first – no worries as you want to be long anyway. If the shorts fill first, you don’t want to let it go to far without completing the longs but, either way, you get your price on one side or the other EVERY TIME using that method.
Here’s another helpful hint: If you want to get an idea of how badly an ETF decays against a commodity, just put them both on Yahoo charts for your planned ownership period:
Looks like UNG ends up costing about 3% per year but most of that loss came recently as /NG dove down, which would break most ETF tracking models.
Oops, lost my nice chart when I edited the loss percentage:
It’s unclear to me what is the recommended price for each side. How do you calculate that?
Interesting that you recommend 1/4s. Used to follow a guy (Malden?) who recommended 1/3 tranches.
It’s the prices I put in for the spread – I always put in what I expect to get filled at and then – depending on the day’s news/momentum – I try to get even better fills on each side.
Remember, it’s never an emergency. If you don’t get the price you want – don’t buy it.
So far today, the UNG $5s have been filling for about $4.80 and the $10s have been filling for $3.10, which is net $1.70, not enough to not fill the trade for only 0.18 more than we wanted. The puts are going for $4.10, as expected.
The thing is, we’re picking up $5 in position for $1.52 or $1.70 so 0.18 is not a deal-breaker in this case, is it?
phil, i am not currently in the UNG trade. would it be stupid to sell 2025 10$ puts for $4 to help fund the purchase of the 5$ calls? wouldn’t nat gas have to go below $2 for UNG to hit 6$, or does the roll error eat it up a lot as time goes by?
I hope it’s not stupid because that’s what we’re doing!
With /NG at $2.40, UNG is $8.25 so about 4x /NG, which topped out around $9 and UNG topped out around $35 – so close enough. I’m working on an /NG production deal and, even after sinking $8.5M in to start a well, operating and delivery costs are still $1, so it’s highly unlikely anything below $1 can be sustained and, considering investment costs have to be recoupled as well, you won’t be able to keep wells running under $2 and wells also deplete quickly, about 50% in years 1-3 and then about 10% for another 20 years.
That means, in the grand scheme of things, Nat Gas prices self-correct quickly (less than a year) when they get too low as it stifles investment in new wells and the existing wells (the SUPPLY) quickly diminishes and there’s an 8-month lag to starting new wells.
If we were smart, we would establish an LNG reserve to help smooth prices during the transition and also build up a 3-6 month supply for emergencies (like the one Europe is having now).
Anyway, keep in mind that, when you are using the $4 you collect to fund your bull call spread, you are not in for net $6 – it’s $10! Still, getting UNG for $10 and /NG falls to $1 should have UNG around $4 and $1 is ridiculous for /NG so we add 3,000 more shares for $4 ($12,000) to the $30,000 we were assigned (less whatever you recover from the spread if any) and that’s $42,000 for 6,000 shares is net $7 or you could go $12,000 more at $4 and that’s $54,000/9,000 shares = $6/share.
That doesn’t include selling options or rolling the puts. If I were assigned 3,000 shares for $10 now, with the stock at $8.25 and I didn’t want to spend $24,750 more to DD, I could just sell the 2025 $8 calls ($3.75) and the 2025 $8 puts ($2.75) and that’s $19,500 collected so now I’m inn for net $10,500 on 3,000 ($3.50) with the promise to buy 3,000 more at $8 ($24,000) for a total of $34,500 for 6,000 ($5.75) as my worst-case in 2025.
That’s not a bad worst case so I have no fear of selling the $10 puts.
thanks Phil. am digesting all that.
I asked my assistant to simplify it:
Amazing!
I asked for an explanation of the strategy and got:
The options strategy mentioned in the text involves the use of call options and put options.
A call option gives the holder the right, but not the obligation, to buy a stock at a certain price, called the strike price, within a certain time period. The writer mentions selling the 2025 $8 calls for $3.75, which means they are selling the right for someone else to buy UNG at $8 in 2025.
A put option gives the holder the right, but not the obligation, to sell a stock at a certain price, also known as the strike price, within a certain time period. The writer mentions selling the 2025 $8 puts for $2.75, which means they are selling the right for someone else to sell UNG at $8 in 2025.
The writer mentions that they were assigned 3,000 shares for $10, with the stock at $8.25. By selling the 2025 $8 calls and the 2025 $8 puts, they collect $19,500, bringing their net cost down to $10,50.
Additionally, they have the promise to buy 3,000 more shares at $8, for a total cost of $34,500 for 6,000 shares. This means that their worst-case scenario in 2025 would be owning 6,000 shares for $5.75 each, which the writer considers not a bad outcome.
Good morning,
BAX
They have a good amount of debt not much growth but in a good business, assets are growing and earnings shrinking, PE is 8 where I said I would take a look, should I talk myself out of it?
$15Bn in debt up from $2.4Bn in 2021 and, with all that spending, the bottom line went up $500M and is flat into next year at $1.8Bn. If we add 5% to their interest that’s $750M so now they are only making about $1.2Bn going forward and no – I don’t think that’s why they have such low earnings growth because the revenues aren’t growing either ($15Bn) so it’s doubtful they have accounted for higher interest rates on their debt.
Oops, $1.8Bn is $3.58 per share, $2.85 is about 80% and 80% of $1.8Bn is $1.44Bn projected profits (and the rate increases haven’t even hit them yet!). The market cap is $23Bn so they are fairly priced at $40.27 as it’s 16.5x for a company that has little growth and big debt.
The next factor is they just spent $12.6Bn and seem to have wasted it (they bought Hillrom on 12/21 for $10.5Bn and then recorded an impairment of $3.1Bn)
They seem to be looking to re-package the business and spin it back out. Perhaps that’s why they bought it in the first place – because no one wanted their kidney division by itself? But, even if they do sell them and wipe out the debt – what does that leave BAX with going forward?
Until 2017, this was a $40 company at best, more like $12Bn with over $1Bn in profits. They had big year in 2016 selling a division and the valuations went crazy but the company was smaller but traders kept buying it looking at 2016 and saying things like “Look how low the p/e is!”
So the downturn in the stock is the slow, gradual realization that all the people who paid over $50 for this stock were just idiots and this ($40) is, in fact, the right price – maybe even still too generous.
LOL Phil, you never disappoint, I have a soft spot for beaten down stocks and I love the rush of trading the bounce. I think we will have another chance to load up on better companies at better prices in the near future, Thanks!
I will try to make this comment work again. There should be an image on top and then my comment and a video:
And the lowest unemployment since 1969 (Nixon!). You would think the guy would be more popular…
Video shows up when I refresh.
There is so much that goes into Natural Gas pricing. Weather, Supply and intrigue. This is from a Pulitzer winning Journalist.
https://seymourhersh.substack.com/p/how-america-took-out-the-nord-stream
That guy has a Pulitzer? Are you sure it isn’t made of tin-foil and fits on his head?
Actually, I remember him from Vietnam writing so his prize was over 50 years ago and he’s 86 now. My Mom is pretty sharp at 83 and her 90 year-old boyfriend is a really sharp guy but I wouldn’t trust either one of them to find out what happened at nord stream.
Also, Hirsh clearly lost it 10 years ago when he claimed Obama didn’t kill Bin Laden and Assad was using chemical weapons (which everyone bought into because he has a Pulitzer) and that was totally false as well. That’s why he writes on Substack now. The right wing just uses this guy now to push their agenda – taking advantage of an old man…
Valid points. We will see who trusts people aged 80+ in the near future.
I’m going to throw a random question in here because it has bothered me for a long time. I am getting mixed feedback from friends about the best timing to close option spreads like verticals and covered calls. Quite a few of them tell me to wait for it to expire to realize the most gain when it’s ITM. The other leading opinion seems to be to close or roll them using a 60/30 rule. The rule is, when it has reached 60% of the profit with greater than 30% of its time left due to theta decay and diminishing returns closer to expiration. I have been doing both and seem to work well, although expiration gives me less control over market timing, it also forces patience and discipline. Does anybody else use these techniques or have something better?
Two schools of thought (both valid).
So any time the premium is ahead or behind more than 2 months ($3) from where I expect it to be – I should be re-evaluating my position.
Let’s say GOOGL ends up at $120 and my $100 calls are $29, now there’s only $9 of premium and I expected to have $15 left into March so we’re way off track. That means I should probably adjust but it depends on why GOOGL spiked and whether I think it will last, etc.
If GOOGL drops to $80 and my short $100s are now $10.50, I still expected $15 and now we’re $5.50 ahead with (assuming March) 22 months still left. Now I can only make 0.48/month BUT it’s a much safer-looking bet so it becomes a question of do I have something better to do with the margin than just let it play out for the $10.50.
Everyone wants there to be a rule but it’s all a case by case basis. Just keep in mind what you were trying to accomplish. As you know, I try to set up almost every spread to make at least 200% if it goes well so my rewards outweigh my risks 2:1 at least. Then I only have to be right 1/3 of the time to make money!
If I set up a spread like UNG that’s supposed to make 1,000% and then we adjust it to 278%, that’s fine. 1,000% sounds like fun but you hardly ever get a win without adjusting. As long as the position ends up paying off, money will be made and on that spread, we should be making about 10% per month so the same “rule” applies – are we on track or not. If we’re off track in either direction – we have to consider adjusting – usually 20% off is the trigger but it depends on the term of your trade.
Great answer. I am going to read it a few times and digest it. Thank you.
I’m telling you guys – it is mind-blowing how useful this OpenAI stuff is:
What are the 5 largest publicly traded natural gas producers?
As of my knowledge cut-off in 2021, the five largest publicly traded natural gas producers are:
It’s worth noting that these companies are large, diversified oil and gas companies, and natural gas is just one of the products they produce. Additionally, the ranking of the largest natural gas producers may have changed since my training data cut-off, and it’s always a good idea to check the most up-to-date information before making any investment decisions.
No problem. I’m looking for companies who are more focused on natural gas?
Sure, here are five publicly traded companies that are focused primarily on natural gas production:
Please note that this information is current as of my training data cut-off in 2021 and the ranking of these companies may have changed. It’s always a good idea to check the most up-to-date information and consult with a financial advisor before making any investment decisions.
How about the 5 best natural gas pipeline companies?
As of my knowledge cut-off in 2021, the five largest publicly traded natural gas pipeline companies in the United States are:
Not even one minutes worth of work. So now I have to use my own brain to decide (keeping in mind it’s old news), if any of these are a bargain given my premise in the post above.
Where is Energy Transfer? Why are they not on the list?
How does Energy Transfer compare to the other pipeline companies?
Energy Transfer is a large, publicly traded natural gas pipeline company based in the United States. It is a major player in the industry and is one of the largest pipeline operators in the country.
In comparison to other pipeline companies, Energy Transfer’s size and market position can vary. It is currently one of the largest natural gas pipeline companies in the United States, but its ranking relative to other companies can change over time. For example, in terms of market capitalization, Energy Transfer has been in the top five largest pipeline companies in the US.
Can you imagine this with current data. I may have to go work at GS to have fun playing with a live version of this thing!
OK, so you know I’m pre-disposed to ET but let’s check out the others and see how they sound:
KMI – $18 is $41Bn and let’s say $2.5Bn in earnings so 14x but $31Bn in debt is going to cost them $1.5Bn a year in interest (worst assumed case) so buh-bye!
WMB – $31.40 is $39Bn and they only make $2Bn so I’m out the door before I even check the $22.5Bn in debt.
D – Well I hate playing single letter stocks because we can’t search for them. $59 is $50Bn and they make $3.5Bn but $43Bn in debt will cost them $2Bn of that so – bye!
ENB – $40 is $80Bn but $6Bn in profits is sexy. $80Bn in debt is not and that’s $4Bn off the profits so $2Bn although all these guys are like utility companies and they’re going to have a lot of debt. Still, hard to get excited about if I don’t think /NG is going to be back over $5.
MMP – $53 is $11Bn and $1Bn in profits were steady for the last 5 years – that’s good. $5Bn in debt will cost 1/4 of the profits and I think we can live with $750M in our worst-case as that’s still only 14.6x. Winner of the group so far.
What are MMPs business advantages?
MMP is a ticker symbol for Magellan Midstream Partners, L.P., a publicly traded company engaged in the transportation, storage, and distribution of refined petroleum products and crude oil. Some of its business advantages include:
But, of course, my initial instinct was to add back ET, who we had closed out for being too profitable. $13.18 is $40Bn for ET and they make $3.2Bn and have a whopping $47Bn in debt. Oh yeah, that’s why I decided to close it! Taking a good $2Bn off the $3.2Bn and we have 33x so it’s a bit too risky now. Clearly MMP seems the smarter choice.
And we’re drop the overall basis from $53,290 for 1,000 shares to $41,855 over 2 years. That means, by year 10, we should have all our money back on the stock.
To build a solid dividend portfolio, you want to always be running tracks and, of course, we don’t have to wait until 2025 to begin putting our $11,435 back to work.
After 20 years, we will have fully paid off two sets of $53,290 stocks but we still have the stocks, so 4x in 20 years. 10 more years is 8x and 10 more is 16x ($852,640). If we just keep all that money in MMP, it would spit out $221,686/year in dividends and option sales from year 40 on without touching our $852,640 principal!
Try asking it the question you just answered: when is the best time to close option spreads like verticals and covered calls?
And the answer is:
The best time to close an option spread, such as a vertical spread or a covered call, depends on a variety of factors, including market conditions and your investment objectives.
In general, it is a good idea to close an option spread when you have achieved your profit target, when the market has moved against you, or when you believe there is an increased risk of assignment for the underlying security.
For example, if you have a vertical spread and the market has moved in your favor, you may want to close the spread to lock in your profits. On the other hand, if the market has moved against you, it may be a good idea to close the spread to limit your potential losses.
With covered calls, you may want to close the position if the underlying security rises significantly, as this increases the risk of assignment. If you believe the underlying security is going to decline, you may want to hold onto the covered call position, as it provides some downside protection.
Ultimately, the best time to close an option spread will depend on your individual investment objectives and risk tolerance. It’s important to regularly review your option positions and make decisions based on the current market conditions and your investment goals.
I can feel it breathing down my neck!  😰 
Now, let’s take a look at the /NG producers.
CHK – Used to be my favorite but the founder died. $83 is $11Bn and they made $6.3Bn in 2021 after losing $9.7Bn in 2020 and not much profit before that – which is why I don’t play them anymore. Only $2.6Bn in debt though but also as of 2021 – not showing 2022 filings. Digging I get this:
OK, still not terrible.
So, assuming this guy knows his stuff, let’s say $2Bn makes them pretty attractive – even if we give $125M back on 5% more interest on debt.
CHK’s dividend is a crazy $9.59 (11.27%) I would like them again but for the $9.5Bn loss in 2020. /NG was $2.50 in 2020 and $3.75 in 2021 and 2022 is more like $6+ so they must be making a fortune but where are the filings? Need to answer that first.
RRC – $24.70 is $5.7Bn and they make about $1Bn but lost $712M in 2020 (now we know what to look at to compare). $2.2Bn in debt knocks them down $100M so $900M is still a good multiple but they only made $412M in 2021 though they’ve paid down almost $1Bn in debt since 2020. That’s tricky but let’s credit them for $50M in interest AND $100M in loan payments and call it $550M less $100M (the same +5%) would be $450M worst-case and that’s still a good valuation! No dividend to speak of (1.3%).
Anadarko got bought by OXY
DVN – Another nice one at $60, which is $40Bn and they make $5.5Bn (lost $2.6Bn in 2020, made $2.8Bn in 2021) and only $5.4Bn in debt will cost them $250M – hardly worth mentioning. And they pay a nice $5.40 (8.8%) dividend!
SWN – $5.36 is $5.6Bn so I guess they have 1Bn shares. They make $1.5Bn and lost $3Bn in 2020 and broke even in 2021 so they are super-dependent on /NG being over $3.50, so they’ve already lost to DVN, who make money either way. SWN has $5Bn in debt so charge $250M to profit and we’re at $1.25Bn which still works at $5.6Bn and, because options under $10 tend to give great premiums, there’s certainly a place to scale into this – always prepared to DD if they drop 50%.
SWN, we can apparently sell the 2025 $5 puts for $1.20 to net in for $3.80.
So I consider it a good trade but not sure if we need it in any portfolio since owning it is way better than selling puts (or combos I was looking at).
Earnings are the 23rd but Q4 averaged close to $6 vs $4 last year so great earnings but then guidance of Q1 starts below $4 and then to $2.40 so far – that can’t be good…
The 2025 $60 calls are $11.50 so we get a 30% discount selling puts and calls with the stock to net about $40, get called away at $60 so + $20,000 and 8 $1,350 dividends is another $10,800 so we’re effectively knocking 1/2 off in just two years.
That means we double up every 4 years which means we start with $30,000 now (margining to buy $40,000 more if assigned). And it’s:
In fact, the sequence above assumes we keep buying the stock at $60. If we keep getting assigned it at $50 – that doesn’t hurt us much, does it? Obviously things go up and down through the years but it gives you an idea for the potential of this trade.
Good afternoon Phil,
Coming back to investments in CDs which we discussed last week.
I took all the inputs and below are some of my observations
1) CD ladder: useful way to keep invested as rates rise.
2) Munis: found in difficult to understand the data of the universe to invest and also which ones would be a safer one. I know it is shortcoming of my knowledge.
So I was planning to invest 50K in a safer investment as it is from my wife 🙂
1) 20K in CD ladder (3 month, 6 month, 9 month and 1 year) from Charles Schaub (around 4.75% APY)
2) 20K in CD ladder (3 month, 6 month, 9 month and 1 year) from Fidelity (around 4.6% APY)
3) 10K in i series bond (current rate is 6.89 and reset is in April)
Also for the CD ladder I may rollver into the same term after maturity of each rung.
Can you and PSW community comment on this approach?
Apprecaite all your time and guidance.
Regards
For Munis I’d suggest finding a bond dealer who specializes in muni bonds and make sure he does specialize and is not just telling you that! If you want to self-direct, consider checking out the holdings of VKQ (which is too low at $12.27) or NBB (also silly at $16.42) and then investigate the bonds which have the higher payouts within those funds.. Just ask for a prospectus from a broker.
Try this too: https://www.finra.org/investors/investing/investment-products/bonds
And this: https://www.investor.gov/introduction-investing/getting-started/researching-investments/using-emma-researching-municipal
phil, thanks for the fantastic answer to last question. but can you clarify if we need to worry about UNG tracking error because of contango over time? if we are buying long dated calls, isn’t the tracking error working against us all the way, or is it just not enough of a loss (tracking error or roll costs for UNG) to be significant for our investment out to 2025?
Yeah, it’s not really enough to matter – especially since we’re selling premium too, so it’s a disadvantage to our caller. We just need to take it into consideration and knock 10% off our 2-year expectations to be safe.
PHil, how many /ng futures do you currently have?
4 of the Aprils at $2.45.
Good afternoon Phil,
Coming back to investments in CDs which we discussed last week.
I took all the inputs and below are some of my observations
1) CD ladder: useful way to keep invested as rates rise.
2) Munis: found in difficult to understand the data of the universe to invest and also which ones would be a safer one. I know it is shortcoming of my knowledge.
So I was planning to invest 50K in a safer investment as it is from my wife 🙂
1) 20K in CD ladder (3 month, 6 month, 9 month and 1 year) from Charles Schaub (around 4.75% APY)
2) 20K in CD ladder (3 month, 6 month, 9 month and 1 year) from Fidelity (around 4.6% APY)
3) 10K in i series bond (current rate is 6.89 and reset is in April)
Also for the CD ladder I may rollver into the same term after maturity of each rung.
Can you and PSW community comment on this approach?
Apprecaite all your time and guidance.
Regards
Yikes, this day turned ugly, didn’t it.
I was buried in the research but nothing we didn’t expect. Just another easy day filling our hedges and now we reap!
https://youtu.be/cVsQLlk-T0s
OK, I’m out of here…
I was never able to get the UNG 2025- 5/10 Call spread at 1.5.or 1.7 today on Thinkorswim. Was anyone able to get a fill on this spread?
The UNG 2025 $5s filled at $4.75-$5.15 all day long.
The UNG 2025 $10s filled at $3.05-$3.15 all day long so the best you could do was $1.60. If you ask for it as a roll, it will never trigger, you have to make offers on each side and you can’t expect to fill everything in a day – only 1,000 contracts each were traded yesterday.
For the roll in the LTP, we’re bullish on /NG so we’re happy to fill our long $5s at $4.70-$4.80 and wait for a bounce to sell the $10s to get our fills because the whole point of the trade is we’re bullish and think /NG should go higher.
You also have to realize that, when we make a call, especially in a post, a lot of people make a trade and a lot of those people are impatient and pay too much (or sell for too little) so just don’t be one of those people.
Here are the $5s:
Here are the $10s:
I never got a fill on the 2025 UNG 5/10 call spread at even 1.7 on think or swim. Was anyone else able to get this spread at 1.7 or lower?