Buy Alert: August 30, 2013
Buy Alert: August 30, 2013
Option Strategy:
Buy US Natural Gas (UNG) October 2013 $19.00 calls for $1.00 or better.
Commodity Outlook:
Yesterday’s EIA natural gas inventory report came in slightly bearish with a build of 67bcf. That’s above analyst expectations of a 62-bcf build. Natural gas initially reacted with a rather swift intraday selloff.
But by the end of the day, natural gas rallied back to the early morning highs.
The fact that natural gas actually closed in the green after a bearish inventory number tells me the commodity is preparing for its seasonal run higher.
As you may be aware, late August through October is the best time to be bullish of natural gas. Investors send the market higher during this time period in preparation for the oncoming winter heating season.
The best way to play a bullish trend in natural gas is with the US Natural Gas Fund (UNG). When gas trades higher, so does UNG.
Here are the important details you’ll need for this trade…
Trade Metrics:
| Underlying ETF Symbol: | UNG |
| Call or Put: | CALL |
| Expiration Month, Day, Year: | October 18, 2013 |
| Strike Price: | $19.00 |
| Current Bid/Ask Price: | $0.89/$0.91 |
| Maximum Buy Up To Price: | $1.00 |
| Maximum Risk Per Contract: | $100 |
Here’s a breakdown of the important technical support and resistance zones in natural gas…
Exit Strategy:
Remember, we want the price of natural gas to move higher. Our first profit target is $4.00 mmBtu. If the commodity can break through that important level, we may see it retest $4.20.
The risk control line for this trade is at $3.10. If natural gas drops below that level, conservative investors should consider closing this trade.
Now let’s be clear…
I’m not expecting natural gas to explode higher like our recent trade in silver. However, we should see a slow and steady rise as the market prepares for the onslaught of winter.
Category: Commodity Trading
