You’ll Never Guess Which Asset Has Been The Top Performer Over The Last Year
Imagine a basket of major assets. In this basket are all the major stock indices, all the big commodities, and even all the major currencies (versus the Dollar). Over the last 12 months, which of these assets do you think has performed the best?
The S&P 500 is up nearly 24% over the period. Not too bad… but not the best. What about oil? Gas prices have been pretty high over the last year, right? Nope – crude’s only up 14% for the past year.
Wait! It’s Japan, isn’t it? The Nikkei has been on a tear since Abenomics took hold. Well, the Nikkei 225 is up over 55% from this time last year, and that includes the recent volatility in the Japanese market. But it’s still not the best performer.
As a matter of fact, the single best performer from this basket is up 66% for the last 12 months. Give up?
It’s natural gas.
Yep, the much maligned energy source has had a far better year than most people realize. The nat gas uptrend may have started with a colder than expected winter, but it’s morphed into something much bigger.
You see, the price of natural gas has been at rock bottom for years based on abundant supply (brought about by the fracking revolution). However, market economics is about more than just supply. It’s also about demand.
Natural gas has begun to displace coal as a major energy source in the US based on its low price and cleaner properties. Keep in mind, coal has historically provided about 50% of the country’s power. It’s a huge market for natural gas to overtake.
Here’s the thing…
Natural gas supporters have now set their site on crude oil. The persistent high price of gasoline – along with the reliance on foreign supply – has slowed demand for crude. And this time, it might be permanent.
Improving technology is making natural gas a viable transportation fuel alternative. Combine that with the low price, massive supply, and domestic presence and you have the recipe for a regime change.
In other words, we may just be at the start of the natural gas revolution.
What’s it mean for natural gas prices? Well, if you believe demand for nat gas is only going to increase, then the price should also be at the beginning of a long-term uptrend.
Of course, there are several ways to use options to bet on a long-term rise of natural gas prices.
One simple way is to buy call LEAPS on a nat gas ETF. But, if buying long-term calls is not what you had in mind, you could also consider selling puts. If you believe there’s a floor on how far nat gas could fall, this could be a solid income strategy for your portfolio.
Whatever you decide, my strongest piece of advice is this… don’t bet against natural gas in the long-term.
Yours in Profit,
Gordon Lewis
Category: Commodities, Options Trading
