Most recent long range weather models indicate a strong possibility for another nasty Midwest winter due to the La Nina pattern in the Pacific off of South America. Sorry Midwesterners but cold winters here are not really a shock. Unless of course you walk outside. Looking at a longer term monthly chart shows that we tend to see mild to very strong upward price moves as we enter the fall season for the natural gas contracts. Heating oil is the predominant fuel source for the Northeast while the Midwest is the predominant user of natural gas. We have slid to lows near 3.60 for the January 2102 contract and I am recommending bullish strategies right now. Full size futures can be volatile where every 1 point equates to a $100 move (3.60 - 3.62) 10 cents = $1000 (3.60 - 3.70) and a 1.00 move (3.60-4.60) is equal TO A $10,000 MOVE. There are ¼ size mini contracts where each point = $25, 10 points = $250 and 100 points = $2500. I am proposing 3 trade ideas below.
The Trade: Buy January natural gas at 3.59 (full or mini depending on account risk)
The Stop: Place a sell stop at 3.47. Risk is $1200 for full and $300 for mini
Objective: Place an order to liquidate at 4.60, $10,100 for full and $2525 for mini
Alternate Trade Place an order to Buy the January 5.00 call option for $350 (risk is the $350 premium)