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BlogHedgingPopularTrading

Trading Trends and Recommendations from the AEGIS Desk

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By September 25, 2020 No Comments

Cal ’21 natural gas still provides value despite recent price losses.

Trade recommendations are fluid and are for informational purposes only. Commentary is as of September 25, 2020, 8AM.

Hedge Trading Trends

Hedge emphasis among our clients has shifted to tenors farther out the curve.

  • Natural gas hedging had some renewed interest with the strong rally in the front of the curve and slight improvement in the winter ’21 strip
  • WTI hedging activity increased with prices climbing back above $40.00/Bbl
  • Overall hedging activity has been lower compared to prior weeks

Recent Recommendations

AEGIS recommendations are tailored to the individual profiles of clients, but there are some trades that have become worth considering given current market conditions. We explain those below, and in the table that follows.

Consider looking at adding WTI hedges out in Cal ’22, during price rallies, if you are light on hedges. Use costless collars to mitigate risk.

While natural gas prices have been slipping in the front of the curve, collars in 1Q2021 and swaps in Apr21-Oct21 still provide solid value.

Big Questions

Answers to these questions are usually client-specific, but we’re fielding multiple inquiries on these topics:

  • My hedge book is under water, what are some of my options?

Adjustments will depend on the client, the book, financial situation, etc. If a collar is under water, you could consider buying back the call or buying a call spread to give yourself more upside. However, this is usually expensive. If a swap is underwater, you could consider transforming it into a three way. This would involve buying a call at the swap strike and then selling a put, below the swap strike, and selling a call, above the swap strike, to create a synthetic three-way collar.

Furthermore, if you have additional unhedged barrels, you could consider adding more hedges to raise your W.A. floor/ceiling. You could also look at enhanced structures as well, but that comes at a cost.

  • What are some hedge strategies for Non-Op players who do not control the timing of when their production comes online?

Puts would be the safest way to hedge. You can sell calls once production comes online to recoup most of your costs from purchasing puts.

We continue to monitor oil, gas, NGLs, and regional markets for hedging opportunities. To learn more and see AEGIS opinion and recommendations, go to AEGIS View publications, or contact info@aegis-energy.com. Like what you see? Share this article with the button on the bottom right of your desktop. Market questions or comments? Contact us at view@aegis-energy.com

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