After spiking to a new 15-month high shortly after the opening bell, natural gas futures cascaded lower throughout the session Tuesday as traders took profits on forecasts showing Hurricane Lili may not be as “well-organized” a storm as once thought. Plumbing down to the psychologically important $4.00 level near the close, the November contract was hit hardest by the selling. It finished at $4.067, down 7.1 cents for the session.

As of 5 p.m. EDT yesterday, Lili had moved off the coast of western Cuba and was headed to the northwest at the healthy clip of 15 mph, according to the National Hurricane Center. Already packing maximum sustained winds of 105 mph, Lili was is expected to strengthen, with an expected strike in western Louisiana or East Texas during the afternoon Thursday.

And while Lili seems poised to pack a punch, not everyone is convinced of its potential. “Although Lili still has decent central dense overcast, she has lost a little of her eye wall structure, symmetry and organization,” said New York-based Weather 2000 in a note to customers Tuesday morning. “The more a hurricane looks like a broad pinwheel, the worse its health is, so to speak…These slightly ‘unhealthy’ characteristics we are noticing in Lili may or may not be displayed in her sustained winds or central pressure, but they will likely prevent rapid intensification for the time being,” the group continued.

That being said, Weather 2000 still looks for enough strengthening to make Lili a Category 3 storm with maximum sustained winds of 111-130 mph when it impacts the Gulf Coast, likely between Beaumont/Port Arthur, TX and New Orleans.

While some traders said that the market’s sell-off was in reaction to the uncertainty surrounding the storm, others agreed the price erosion was a technical correction in a market that was extremely overbought. “I am still on hurricane watch, but I hang my hat on the chart,” said Jay Levine of New Hampshire-based Advest Inc.

The impulse to sell the market on its move to the mid- $4.20s was an easy one, he continued. “That is the absolute top of the recent uptrend channel.” Now that prices have moved lower to fill in the $4.095-12 chart gap, he sees potential for the market to work itself back into another hurricane froth before ultimately turning lower amid the longer-term fundamental bearishness.

With volatility likely to continue through the duration of the shut-ins (see related story) and with storage estimates varying widely for Thursday’s report (35-55 Bcf injection), he endorses a long options strangle. Specifically, Levine might suggest that bulls may want to take a look at simultaneously buying a $4.25 call and $3.75 put. At the same time, bears might want to buy a $4.50 call and $3.80 put, he issued.

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