The natural gas futures (continuous contract) on the MCX (Multi Commodity Exchange) hit a high of ₹760 last week. But then, the contract could not extend the rally and has moderated to the current level of ₹626. To establish another leg of uptrend, the contract should breach ₹760 decisively i.e., the contract should see a daily close above ₹760. Until then, the likelihood of the contract seeing further drop in price will remain high.
From the current level, the natural gas futures could see a decline in price to ₹535. Although ₹600 is a support, the contract will most probably slip below this level to drop to ₹535. A breach of ₹535 can drag the contract to ₹500.
So, given the prevailing conditions, one can consider initiating short-term sell trades.
Short MCX natural gas futures
Traders can short MCX natural gas futures at the current level of ₹626 and add more shorts when price moves up to ₹655. Place stop-loss at ₹685. When the price dips below ₹600, revise the stop-loss down to ₹660. When the contract touches ₹535, liquidate half of the shorts, and tighten the stop-loss further to ₹585. Liquidate the remaining at ₹500.
Alternatively, one can consider buying natural gas 600-strike put option (600-PE) on the MCX. It is currently trading at around ₹47. Accumulate more when price drops to ₹35 so that the average price would be ₹41. Place stop-loss at ₹26.
Exit these positions at the prevailing price when the natural gas futures price drop to ₹535. By then the price of 600-PE would roughly be around ₹100.