APT Markets

Posted on by William Griswold

Good Morning,

The fundamentals haven’t changed much from Monday, and even less from yesterday, so we’ll jump right into the markets. Let’s start with a summary from APT:

We like this tool because it finds attractive trade/hedge opportunities that might otherwise be overlooked. This table is one of our bookmarks that filters on near-term months and quarters that have a Strong emphasis, meaning the model likes the opportunity.

NP-MidC Light Load PowerPrice 2017-05

The first trade is a May NP15 – MidC Light Load spread. APT recommends this position from the short side for a couple of reasons:

  1. Near contract high which means it has recently hit a high and come off
  2. Stable Forecast – APT tends not to like positions where the Forecast Volatility is greater than the Market Volatility.

Looking at the chart, one would think the market is reasonably priced now where it had been cheap before. That’s partially true, but APT is looking for lower risk opportunities, and we concur on this one. We still believe that May MidC Light Load is cheap while NP LL is moderately priced leaving only one direction for the spread – Down. SHORT

SP-Palo Light Load PowerPrice 2017-06

This spread is trading near a contract low; it just recently bounced off that low, but unlike the NP-MIDC spread, this one has a very wide delta to the forecast making it more attractive in our eyes. The forecast volatility is much lower than the market, the Delta is wide, and its trading at a bottom. We especially like the trade given the return of the Palo thermals which will run at night to serve the day peak. LONG

NP-SP Heavy Load PowerPrice 2017-06

Again, just bounced off a contract low. We don’t like the recent forecast movement, that is a glitch we’ll be fixing today, but ignoring that recent forecast move, we do like the position of the forecast relative to the market. Much of SP’s strength of late is off of the outage spread between the two hubs, nearly 5000 MW:

Those outages will converge as the ISO slips into summer which will force the cash spread to widen. We also like seeing NP realize its first hot days of the year; SP has enjoyed a few days in the 90s all the while NP was in the 60s, maybe low 70s.

LONG

SP-Palo Heavy Load PowerPrice 2017-07

The market is trading very low, a few days ago it set the low, and the forecast (ignore the glitch) has consistently been above the market since mid-Feb. This position has been sold down off of an aberrant cash market that was driven by Palo outages and early heat. There is plenty of time for this position to rebound, we see value around $-1.00 leaving $2-3 of upside. LONG

NP-SP Light Load PowerPrice 2017-09

September may be too far out in the curve for anyone to trade, but we’ll assume there is a market since the marks recently moved. Perhaps the recent selloff is tied to the monstrous snowpack in the Sierras, and there is more hydro capacity in NP, but relatively speaking each is impacted almost the same. But that is beside the point; there will be no snow in August, let alone September. BUY

Mid-C Light Load PowerPrice 2019-Q1 To 2018-Q1

A quite strange market move for a year on year roll, and perhaps it is just bad marks, though the more recent prices have been consistent. We won’t bother you with why the fundamentals don’t support these latest prices; there are no fundamentals out that far that would drive a price up or down, aside from a massively backwards gas market, which isn’t the case. LONG