Natural Gas Ratio Spreads: Account Size and Risks

I'm going to go through what I do in my account, and then I'm going to go through what we're

going to do in this account.

Is that okay?

Sure.

Absolutely.

Because this is a big animal, but I do trade natural gas.

So this is what I will do.

I will buy one, 260, sell two, 255.

Now don't get me wrong.

I've taken heat on this plenty of times, and this is not a trade recommendation.

But here I'm taking in $240.

I'm putting up 2,300.

My break-even on this is just where you can see this brown bar.

I have a question for you.

Here's this question we've been asked, and we'll get emails on.

What size account do you think someone needs to have to put on this downside ratio spread,

which has a naked option component in natural gas?

Now I'm never selling a naked call in natural gas, never, but to the downside, to have this

naked put component, what size account do you think someone needs?

So I think that's a great question, and I love getting these types of questions.

I'm going to answer it kind of two-fold, if that's okay.

So I think you'd need, I mean, I'm going to be, I would like to have more than less.

I would think $50,000 minimum in an account just because this is so big.

But I also think if you have a $50,000 account, you can trade other things than this.

So that's why, this is two-fold.

This is a, I don't know that if I had a $50,000 account, I'd be jumping into natural gas downside

ratio spreads.

So it is-

I liked how you answered that, because I've heard people say, oh, 30,000, and in my mind,

I think at least 50,000.

But then to your point, if you've got a $50,000 account, there's way more things that I'd

be trading.

So in my mind, this is for a bigger account, 100,000, 150,000.

You've got other positions on, but this is just one of.

And even then, I get-

There's other ways to do it.

I mean, natural gas is something that I look at because I've always looked at it.

But I think there are better ways to trade, like if I'm using this money, because it's

going to use-

Natural gas can grow teeth.

So just watch this.

It looks like a $2 product, but it's not.

It can turn into a $5,000 product.

On top of the move-

Yeah, 27,000, that would be like 27,000 down in notional value.

But it can turn.

You got to keep in mind, it also moves, moves like the Dickens.

I've seen this.

Look at this.

Look, it can go from, it went from $4 down to $2 in the blink of an eye.

That's a big move for a big product.

So I'm slapping a warning label on this.