With all of the focus on the price of oil over the last few months the gyrations in the price of the other product from fracking, natural gas, have often been overlooked. It has, however, been a wild ride. The increased supply in the commodity combined with the inability to export and a warm start to the winter season caused U.S. natural gas to collapse even more spectacularly than oil, but it seems we may finally have found a bottom. If that is the case it is worth looking at how traders can play that story.
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From a high of 6.49 in February of 2014, natural gas futures lost close to 75 percent, dropping to 1.68 in December of last year, and then bounced to start this year around 2.50. Despite colder weather, however, over supply has remained the focus of the market, and gas futures have dropped back to below $2 this week.
At these levels, many may be tempted to initiate a long term trade that involves some kind of a bet on higher natural gas prices in the future. In many ways, though, that is not as easy as it sounds. Playing futures is one option, but the leverage involved makes that difficult to do in a trading account for any length of time. The margin requirement would seriously dent your available liquidity for other trades and the need to roll over contracts makes it less than ideal for the longer term. To some extent that can be mitigated by using the EMini Natural Gas contract (QG) that requires less margin, but the rollover…