December Natural Gas is up 13.2 cents at $4.556 this morning as I write.  The enclosed chart shows an impressive three day rally in natural gas coming off of mostly bearish news the past several days.  It could be that all the bearish news is currently discounted in the price of natural gas, or it could be that a major cold front is expected to hit the US later this week.  I am betting on the latter.   The enclosed chart shows that the overall trend in natural gas is lower, but prices have gotten oversold, so a near term short covering correction is not a surprise coinciding with a cold front.  The directional movement indicators are bearish but narrowing.  The ADX line which has been rising is starting to flatten, which could suggest a bottom in prices in the near term.

December natural gas options expire today!  Therefore, our put options at the $4.35 and $4.15 level will expire worthless if prices close above those levels today.  Our short call option at the $5.50 level will also expire worthless today if prices don’t rally that high by the close.  That will leave us with one long December futures contract which we will either liquidate at the close or drag a very close stop.  Tomorrow is the last trading day for the December futures contract, so we would need to be out by then either way.

I still recommend trying to liquidate our far our delivery month position into 2012 at the price stated below.

 Followers of this letter should be:

Long one December Natural Gas from $5.721 and short one December Natural Gas ($5.50 strike) call option from 60 cents.

Long one December Natural Gas ($4.35 strike) put option from 18.4 cents.

Long one December Natural gas ($4.15 strike) put option from 9.4 cents.

 December option expiration is today!!. 

 Followers should also be long one December 2012 Natural Gas from $7.25.  Near term, I will be looking to liquidate this trade at $7.26 GTC.

 David Hall

 The information  and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not  necessarily indicative of future results.