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United States Natural Gas Message Board

  • jewolf2182 jewolf2182 Sep 27, 2009 10:13 PM Flag

    Nov NG vs UNG NAV Scenario from the Wolf

    Short sweet and to the point.
    Current
    11.83 UNG 4.95 Nov NG

    14.33 UNG NAV @ 6.00 Nov NG
    8.40 UNG NAV @ 3.50 Nov NG

    Place your bets accordingly!

    Oh as an aside right now if the spread between November and December NG stays the same you will own NG in the future at $0.72 or 14.5% higher than you currently do without a penny increase in NAV.

    Or it would look like this if the roll was finished today
    11.83 UNG NAV owning $5.68 December NG.

    So everyone saying UNG goes to 20 with $6 NG can go fly a kite. You need NOV NG to rally 69% to get UNG up to 20 from the current levels IN 14 DAYS.

    Wolf

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    • O, you are correct. Once the calls expire, you will still have ownership of the underlier.

      I was referring to two portfolios prior to the call expiring. Until that time, the two portfolios of short a put and short a covered call are identical, it is a mathematical property.

      But you were wise to warn the poster about the hazards of selling puts - I was just trying to stress that your alternative was the exact same thing.

    • Good point, a covered call doesn't protect you from the downside in the underlying security. I still wouldn't say they are identical, because the put position is closed out at expiration, so even if the dip was temporary, you're still screwed. With a covered call, you still own the underlying security after the call expires worthless, so their is still a chance to recover your loss if the security goes back up. That's a subtle difference I guess.

      I guess what I was warning against was writing loads of deep out-of-the-money puts without really taking into consideration how many underlying shares it represents and how much you stand to lose if the options expire in the money.

    • Wrong perdiction.
      On Oct 16th, 09
      NG = min. $4.78
      UNG = $13-$14.34

      mark this post

    • Keep in mind, just getting my feet wet, and know nothing about trading options yet.
      I am bullish on Nat Gas and was advised to sell puts. My account should be good to go later this week, but can't trade yet.
      If you were bullish on Nat Gas, What puts would you sell, and do you agree with this approach?

      • 1 Reply to do.john67
      • If you are new to option trading, DO NOT START BY SELLING NAKED PUTS. Especially not in UNG, where there is a very real possibility of a sharp sell-off before withdrawal season starts. Realize that with selling naked options you have limited upside, but unlimited risk.

        If you really want to take a long position in UNG I would advise selling covered calls against your long shares. This should help cover some of the rollover slippage from the steep contango.

    • Monty:, you wrote: "Oct futiures c;osed 10% below the spot price."

      Actually, today, Monday, is the last day for Oct. futures to trade. Currently they are down 16 cents = down 4.3%.

      GL

    • Good post Wolf, but I think nat ags will not a big move in 14 days, but I do see a period of consolidation. I am a buyer of nat gas on bigger dips as I do see the price of nat gas reaching 7 to 8$ sometime by March of next year. UNG is NOT the best play, but it will move up from here after some pullbacks. I would not be short at this level that is for sure.

    • So UNG sucks. We all know that. But short UNG is risky becuas NG could go up and UNG would go up as well. How could Nov futires be 4.98 when Spot is at 3.6? DOes that make sense. Whos to say that sopot won't come up to meet that and then some. Oct futiures c;osed 10% below the spot price;. Aren't those supposed to even out at expiration?

      So the question is, if we know UNG will underperform in the long run how do we get guaranteed profit?

      Maybe there needs to be a depleted mine ETF that would allow for storage if NG and collect the huge contango profits. %0% in a few monthes seems to eb common. And the mine would also make the profit of the storage costs. I wonder how to start that up?

      Anyone got any old salt mines for sale? montyya

      • 1 Reply to montyya
      • Mont

        I was actually talking to a bank who forclosed on a old natural gas supplier about getting the storage facilities and doing that myself actually. Unfortunately the price dynamics and the capability of the facility wouldnt allow it to be worth its while. Plus I think there would be issue on actually delivering the NG. It was more of a research thing.

        As for how to play short from UNG you could do a number of different strategies to take advantage of it. Try to time the "underlying NG" high or cushion high. Once you have that you could initiate out of the money bear call spreads which I am looking at right now for trading today to be prepared for Nov NG to be prompt. The out of the money bear call spreads will one give you a 8.6% cushion to the upside if you sold the Oct 13 calls before you would start to lose money. Granted selling you the $13 only gets your $0.30 and if you hedge with the 14 calls that will cost you between $0.10-$0.15.

        So a skinny margin of $0.15-0.20 but you should come up with the probability of UNG reaching 13.15 and staying there through the third friday in October. If your probability of that happening is 70% unlikely then the risk reward plays out decently. This also puts time decay on your side. I dont know if I would do the $0.15-$0.20 spread myself but if we get a little more pop and it opens up to $0.40 then I may.

        Wolf

    • If NG falls only 36 cents, UNG will drop to about $11.

 
UNG
6.75-0.18(-2.60%)2:52 PMEDT