How we made 10.000 dollars shorting Natural Gas and other stories…
A cautionary tale of greed, luck, and the struggle for survival of a retail investor
It’s funny that I use the pronoun we, as it was my husband who entered this quagmire of the commodities market, as I watched from the outskirts, the sheer struggle of being a retail investor in the commodity market. My entire contribution in this entire adventure was, loaning 3000€ of my own personal savings to save us from losing it all.
I did get my investment back, with solid returns. But will I advise anyone else to do this? Nope. My husband might, he will add his caveats, the biggest being “don’t borrow and invest”. This might sound pretty basic right now, but once you are in the game…. not easy to follow. Perversely, it was the borrowed money that kept us in the game and also the borrowed money which probably shaved Years off our lives. Let me tell you the story… But before we start, let me clarify some of the terms I would be using.
- Shorting: usually you buy at a low price (stock or commodity) and sell at a high price. This is how you can make a profit. But if you think something looks ridiculously overpriced, you can reverse this process by selling first and buying later when the stock or commodity comes down to a lower price.
- Leverage: This is a concept for CFD trades, where you pay for one unit of something, while buying say 10 units (it can be 10x, 20x and so on…). What you deposited is called your margin.
- Stop Loss: This is that number, which is decided between you and the broker, that if you have lost say x% of your investment. The trade will automatically close. In our case, this was decided by the broker, as 50% of the invested money.
It all started with 200€ (the profit is written in dollars because we use an American trading app) and the logic that the summer will come and the U. S. natural gas prices which at 6.4$ in April already looked inflated would go down. And so began the madness, the prices steadily rose, when my husband lost a few trades because he was not constantly looking at the computer screen, and the trades hit the stop loss automatically; he realized he needs to be more vigilant. So he watched in horror as the price went up to 7, adding all of his saved capital to push the stop loss (remember it is 50% of invested money, so the only way to push the stop loss was to put in the capital). As it reached 9, he had maxed out his credit card. And it was then, that I truly understood what was at stake here.
Due to the leverage, we were already playing a game 10 times bigger than us. And on top of it, we incurred substantial debt, we simply could not afford to lose this trade. Initially, in all his innocence, my husband would open another short, whenever the price went up. Surely, something which was trading at 5$ in winter and 3$ in summer could not go beyond 7$… could not go beyond 8$, surely not beyond 9$… and so he did not just have one leveraged short, he had at one point 15 shorts opened, which all required pumping up of capital. The capital which we did not possess. Just see the US Natural Gas Graph over the past 4 months…
And so followed other hard decisions, like, him having to come to me and ask to dip into my savings so we don’t lose it all. Why did I do it? Because he asked. He probably thinks, his impassioned speech about how these prices were unsustainable and hence would go down eventually, was what convinced me. From my side, I was enrolled in a team that suddenly decided to play a game, I sucked at and had no interest in. But at the end of the day, I was part of the team. I had to play.
For his part, my husband went really deep into understanding US Natural Gas and the politics surrounding it. It was like entering a completely new world for him. Rumormills were describing an unknown investor who bought 10 dollars call expiring at the end of July for 1.5 million dollars. Ongoing speculation which was inflating the natural gas prices. Biden administration trying to decrease American natural gas production to assuage the green energy lobby. We were just as helpless as ever, but with eyes opened to the truth. And the truth was, the game is rigged against small retail investors. It doesn’t matter that the prices are inflated artificially. To survive this game you need money, we had to create it out of thin air through a credit card. If we had lost, which would have happened if the price ever touched 9.8$, we would have lost real big.
We got saved by 20 cents, the prices reached 9.6$ and that’s when a total freak accident saved us from learning a very expensive lesson. There was a fire at the export facility (Freeport LNG) and while it was very bad news for fuel-starved Europe, it turned out to be a blessing for us. With the extra natural gas now available to the Americans, the supply increased and hence the prices went down. But this was still not the hallelujah we expected when we started this. The price went down but not in a waterfall. Every single fall was met with renewed attempts to pump the price up.
The struggle to survive… and that’s what it was slowly boiling down to, was stressful, exciting, and fraught with small scares and big draws of luck. Once a few of our shorts were 2 cents away from reaching the stop loss. We were there, rooted to the screen, not having any more money to move the stop loss waiting for the red number on the screen to cross the dreaded limit. And it fell again.
The light at the end of the tunnel flickered and flailed. The original plan was to wait until the prices went down to 3$. But thankfully better senses prevailed and we closed all our shorts at 6.2$ and took out 10,155$ profit. When combined with the equity positions which were closed in loss to provide the liquidity to keep the CFDs alive, we were looking at a profit of 9,468$.
In this ride, which we never intended to take, we ended up becoming specialists in Natural gas, knowing how ports work, and how inventory reports affect the prices. And while the logic was solid, that 1 dollar candy can be sold for 2 dollars but not for 100 dollars. And that inherent value of a commodity cannot be inflated infinitely. The logic doesn’t work on a timeline. Time and Money together can create wealth, but when you are short on either of them… it can be a rough ride.
