Buy Alert: January 16, 2014

| January 16, 2014

Buy Alert:  January 16, 2014


Option Strategy:

Buy US Natural Gas Fund (UNG) April 2014 $21.00 puts for $1.50 or better.


Commodity Outlook: Natural Gas

This morning’s EIA natural gas inventory came in at -287 bcf… a record weekly withdrawal.  Clearly, the “Polar Vortex “ had a big influence on natural gas demand last week.

But here’s the deal…

The -287 bcf withdrawal is a bit less than the consensus estimate of -300 bcf. So even though the withdrawal was huge, it’s a bearish signal for natural gas.

With natural gas trading near $4.40 mmBtu, now’s the perfect time to establish a longer-term bearish position.

To capitalize on weakening natural gas prices into Spring, let’s buy puts in the US Natural Gas Fund (UNG).  When natural gas falls, so does UNG.

Here are the important details you’ll need for this trade…


Trade Metrics:

Underlying ETF Symbol: UNG
Call or Put: PUT
Expiration Month, Day, Year: April 17, 2014
Strike Price: $21.00
Current Bid/Ask Price: $1.30/$1.34
Maximum Buy Up To Price: $1.50
Maximum Risk Per Contract: $150.00

 Here’s a breakdown of the important technical support and resistance zones in Natural Gas…

Natural Gas


Exit Strategy:

Remember, we want natural gas to trade lower.  Our first profit target is $4.00 mmBtu.  As the winter heating season draws to an end in March, we should see the commodity drop into the $3.80 range.  

The risk control price is $4.55.  If natural gas rises above that level, conservative investors should consider closing this trade to reduce risk.


Category: Commodity Trading