Fast Cash From Selling Options in Overbought or Oversold Markets

July 2018 Podcast James Cordier and Michael Gross Michael: Hello everybody. This is Michael Gross of OptionSellers.com. I am here for your July Podcast. This month’s podcast will be in audio format. I’m here with head trader James Cordier. James, welcome to the show. James: Thank you very much, Michael. Always happy. Michael: Great. The topic of this month’s podcast is Fast Cash from Selling Options in Over-Bought or Over-Sold Markets. James, as you and I know, we’re not really in the business of looking for fast cash, but we’re more in the business of long-term investments. Every once in a while, when you’re selling options, there comes certain opportunities where there might be a place to sell the option and you see that time decay in just the first 30-60 days. Often times that can be when markets get to an extreme, like some markets we’re seeing now. Wouldn’t you agree with that? James: Michael, it’s interesting, we are very long-term investors. When we’re looking at seasonal positions or headlines that create a slightly shorter-term opportunity, then we do look at things like timing and certainly all the headlines going on right now with trade are probably offering some really good opportunities of the slightly shorter variety and we’re looking forward to taking advantage of those over the next 10 days or so. Michael: Great. I know, as you and I have been discussing, as are most investors right now, the big topic is trade tensions with China. I don’t know if we call it a trade war yet, but certainly having got some investors attention and pushing the stock market around. Maybe talk a little bit about how that’s affecting commodities right now. James: Michael, if this doesn’t turn into a trade war, this is the most well played game that I’ve ever seen between the U.S. and China. I mean, we are right to the brink of what could be quite a significant trade policy coming down the pike. It is definitely worrying some investors that are looking at certain parts of the global economy. Uncertainty is always not welcome. Anyone who is looking at investing for their company or inventories or what have you, when they see uncertainty they usually hold back and that is probably going to be swelling some economic growth globally if this doesn’t come to a head here in the next week or two. Michael: Okay. As most of you listeners know, as far as being an option seller, it doesn’t really matter to you which way the market or prices are moving, especially when you’re trading different uncorrelated commodities. Often times, situations like this can create opportunities and that’s what we’re going to talk a little bit about today. James, would you like to go ahead and move into our feature markets? James: Michael, certainly. Natural gas is one of the markets that are very near and dear to our hearts. In the very heart of winter and the very heart of summer, which is coming up relatively soon, we did take positions in natural gas much earlier this year, trying to sell put premium. We were fairly successful doing that. Generally, the market bottoms in winter and rallies into spring and the natural gas market did that. Right now, we are looking at a seasonality for natural gas. It has had a very nice rally over the last 3 months or so and basically a lot of headlines talk about the need for natural gas in summer for cooling homes and cooling businesses, of course. We think that’s quite overplayed. Generally speaking, when it’s extremely cold in the U.S. or throughout Europe, demand for natural gas does spike and that is real. As far as buying natural gas for summer cooling, I don’t think the numbers dive exactly. It takes approximately 25% of the natural gas to cool a home in the summer as it does to heat a home in the winter so, generally speaking, when natural gas rallies because the warmer temperatures are ahead, that’s usually something you want to fade. Of course, at that time, inventories are usually being built in a very big way. So, we’re looking at selling natural gas calls over the next 2-4 weeks to take advantage of that seasonal position. Michael: Yeah, you make a good point there, James. The seasonal tendency for natural gas used to get a little bit of a spike in summer and, yeah, you can but it seems like the tendency over the last 5-10 years seems to be more of, as they build that inventory into spring and summer as those supplies rise, it tends to just kind of overlook the summer demand for just the reason you mentioned. Now we’re seeing a seasonal where the seasonal prices tend to start declining in June and keep going right through fall so it appears they’re following that pattern right now. Now, we’re not at a particularly high level of natural gas supplies right now. From what I’m seeing we’re a little bit under where we typically are this time of year. Is that what you’re seeing as we