Natural Gas Strategy Report by Choice Broking Ltd
NATURAL GAS
Natural gas has surged significantly in this week, inclined by nearly 11% in December contract, driven by a larger-than-expected decline in US Inventories and Colder weather forecast suggesting rise in heating demand.
Natural gas price has resumed today with gapped higher by 3%, continued to trade in bullish momentum for 3rd consecutive session. On Daily chart, Natural gas price has continued to trade in Rising channel formation, trailing over 20-DMA level placed at 277. Immediate resistance would be at 312.30, break out of this hurdle will accelerate upward momentum in Natural gas towards its next hurdle placed at 342. The momentum indicators, RSI is trailing over 60 level on all key timeframe which signals strength in Bullish trend.
The December Natural Gas futures contract is showing bullish signs. There's a significant build-up of long positions in put options at the 300 and 320 strike prices, with the highest open interest concentrated at the 300 strike with 6,214 lots. Simultaneously, a notable short covering of more than 1300 lots in the 300 strike call option suggests increased buying interest at this level. Based on these option chain trends, we anticipated that the December Natural Gas contract may settle above the 300 level at expiry
Derivative strategy (Bullish strategy):
Buy NATURALGAS 300 CE 23-Dec 1 lot @ 16.70
Sell NATURALGAS 320 CE 23-Dec 2 lots @ 6.30
Buy NATURALGAS 330 CE 23-Dec 1 lot @ 3.40
Max loss: 9000 below 300 (on expiry)
Max profit of 16000 at 320 (on expiry)
Max profit of 3500 above 330 (on expiry)
Risk - Reward: 1:1.77
Breakeven: 307.20
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