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Anticipating A Rise In Natural Gas

Sabine Pass

Probably the most important thing that any trader can do is to keep an open mind. Preconceptions can be dangerous to your wealth. Making an objective analysis of the prospects of a stock or whatever you are trading, and then believing in the results of that analysis even if they contradict what you thought you would see, is not just good practice for scientists, it is also how traders keep their jobs. I have been reminded of that this week, when I did an analysis of an existing position, fully expecting to find that it was time to take a profit and move on, then ended up not cutting out at all, but actually buying more of the stock.

Back in early May, I wrote a piece here suggesting buying Cheniere (LNG) as a way of playing a possible rise in natural gas prices. That was my chosen way of playing that belief for two reasons. First, there was a good chance of volatility in the short-term, even if my long-term view was correct, so using natty futures could result in a big enough short-term loss that you would be forced to cut the position before NG could bounce back. The second was that the nature of Cheniere’s business meant that the trade had a chance of success even if natty didn’t bounce very hard. They are involved in transportation and export, so consistently low US prices can actually increase demand for their services.

The above chart for LNG since the publication of that piece shows that, after getting off to a rough start, the trade has…





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