Wednesday, June 23, 2010

UNG under consideration

So last night I was watching a show on the discovery channel and natural gas was on my mind. So I decided to check out the UNG ETF that looks to have finally put in a bottom around $6.72. It has since traded above its 50 day MA which is currently at $7.56 but has remained below its 200 day MA $9.17. I really do not see this one moving up very fast anytime soon, at least not between now and July expiration.

On the chart below I highlighted the area of profitability in grey, almost exactly linds up with the 50 & 200 day MA's.

I am looking to sell 10 July '10 8/9 strangle for about $0.46. For about $0.10 I could buy the wings and turn it into an iron condor, but I am not sure that it is really neccessary. I think the 50 day MA and 200 day MA will act as a natural box between now and July expiration.  

 The margin required to put this trade on is about $1,475 for a 10 lot. My stop will be a 50% loss of the total gain on this position, which is a moving target that represents about $230 in loss vs a $460 in max gain. I intend to hold this one till expiration except in the event that I can buy it back for $0.10 or less before expiration.


  1. So based on what you've written, I just wanted to point out that if you're willing to buy back at .10 and in essence leave that on the table, and if you're planning on leaving it on until expiration, why not just buy the wings for .10? This lowers the required margin and gives you the piece of mind. It will lock in your max gain at your stated exit point. I guess the trade off is protection in exchange for not exiting early.

  2. I had planned to keep this one to expiration, but the short side of this just does not look attractive with a market that wants to tank. So I took the short side off for a small loss and left the short $9 calls on. I have a GTC order out there to close them out at .05 so that I get a free commission. The mark is at .055 and the thing has dropped another .08 since I closed short side.

  3. Looks like it was a good call getting out of this UNG trade as it has broken down and is only pennies away from my stop loss.

  4. I did pull out of this one and do not regret pulling out, but the 200 day did hold as support and UNG bounced like $0.40 today. It was still a good play in my mind but the market was not acting in a way that left me comfortable with the trade on given the current market conditions.

    But it is something to note that as all the other commodoties got their ass handed to them this guy held in there.

  5. Mr. Market is laughing at you, go kick him in the face.