Following Monday’s drop of nearly 30 cents, August natural gas futures traders continued to push the prompt month lower Tuesday as the contract recorded a low of $6.240 before closing out the day’s regular trading session at $6.307, down 6.9 cents from Monday.

Tuesday’s $6.240 tick took out Monday’s $6.320 low for the move. The last time natural gas futures traded lower was back on Jan. 18, when the February contract reached a low of $6.150.

“We moved lower on pretty good volume on Monday and Tuesday, so we will have to see what price level stands in as support,” said Tom Saal of Commercial Brokerage Corp. in Miami. “It all comes back to the fact that there is no fear in the current market. I just don’t think we have seen enough weather to create any anxiety. This thing will likely erode lower until we find some supportive weather out there.”

Looking at potential support lines, Saal said he is targeting the low for calendar 2007 of $6.030 set back on Jan. 5. “I think that is our next target as traders continue to push this thing lower. In this type of market you still have to go with an options strategy,” he advised. “Call options for a buyer are still pretty reasonably priced. The low volatility translates into low option premiums paid by hedgers. With this strategy, you can buy some insurance against a major price move to the upside. While we haven’t seen one of those moves lately, I can recall a few massive price swings to the upside over the past few years.”

Some top traders are taking advantage of market opportunities before hurricane season gets into full swing. “I am just hedging for the long term, but I never turn my back on a storm,” said a California risk manager. He added that his clients were always “more worried about the upside than the downside” but in the interim he was utilizing healthy call option premiums to enhance revenue.

“I was selling $13 November call options, collecting 15 to 20 cents, and buying them back for 11 cents; no large risk-management campaigns, just selling against positions that are deep in the money,” he said. According to the trader, such a strategy is useful as long as there are no market-shifting tropical storms. He noted that traders are always cognizant of the storms because when they come they will be violent.

“Can you just imagine? The minute we turn our backs on tropical weather developments, that’s when a storm is likely to happen. It’s kind of like when traders were selling the market that Friday when Katrina passed over Florida before it entered the Gulf. Whatever the reason they were selling, it was a terrible idea. Don’t ever sell into a storm,” he warned.

On Friday Aug. 25, 2005 spot natural gas futures settled at $9.792, up $0.022 on the day. After Katrina passed over Florida, spot futures opened Monday at $11.200.

As of Tuesday morning, the National Hurricane Center reported that it does not expect any tropical cyclone formation in the next 48 hours for the Atlantic Ocean, Caribbean or Gulf of Mexico.

Until tropical activity develops “we are biding our time seeing if the market can hold $6.300, for if it trades $6.290, you will see some (sell) stops go off,” said a New York floor trader. “You get the idea that there are two opposing forces at work. One party wants to buy it up, and another won’t sell it until it gets to $6.700, so it’s a game of ping-pong.”

The trader observed that the market “will have to wait for a storm to see who is right. If there are no storms, those buys at $6.300 are going to look really bad.”

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