Natural Gas Options Summary

The bullish expiration of the December 2016 futures contract has followed through to January 2017. The options market reinforces the rally. A positive call skew is evident in the winter months. The Jan 2017 $3.75 (~25 delta) and $4.00 (~10 delta) calls are bid. The Jan 2017 $4.00 call was the largest volume traded strike on Monday. Call strikes that were considered unachievable a few weeks ago are now in play. Even the Jan 2017 $5.00 call traded, though in small volume. The Weighted Average Strike Price based on Open Interest (OI) has risen dramatically for both calls and puts. In Jan 2017, the Weighted Average Strike Price calculated from call OI settled at $3.48 and from put OI at $3.17. The Call vs Put ratios based on Volume and OI are in favor of calls. EIA Natural Gas storage data holds greater importance with cold weather on the horizon. A large draw could step prices even higher. The options data, including the rise of the At-The-Money implied volatility, shows the options market prepares for a continuation to the upside.

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WTI Options Summary

WTI futures prices have been range bound in the past few weeks. Oil has slipped back to below $50 / barrel, and the options market confirms a 48% chance of remaining between $47 to $51 in the next twenty days. The largest Open Interest calls are the Dec 2016 $50, $55 and $60 strikes. On the downside, the largest Open Interest strikes are the Dec 2016 $45, $40 and $30 puts. The Open Interest volumes on those strikes are relatively balanced, with a slight downward bias in the recent buying of the $45 puts.

A large positive put skew remains in the market. Heavy buying of the 10 delta calls in Dec 2016, which equates to the $55 dollar strike, coincided with the move above $50 in the beginning of October. However, the market has since slipped back to sub-50 and it seems to want to drift in the downward direction.

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