A strategy idea for options trading investors.

TRADE COMMENTARY:

This trade continues our theme of buying what people need and not what they want.

The objective of the United States Natural Gas Fund (NYSE: UNG) is for the units’ net asset value to reflect the performance of the price of natural gas, as measured by the futures contract traded on the New York Mercantile Exchange.

The fundamentals in the natural gas market point towards a possible rally. The unusually hot weather has pushed up demand, and with nuclear plants around the world, under scrutiny, the demand for liquefied natural gas is increasing. The risks in this trade are well defined. We are hoping for a move up in UNG, and this zero cost (sell a put, buy a call) is a good way to take advantage of any higher price movement. However, we are comfortable owning UNG at a price of 11, if assigned on the AUG 11 puts.

STOCK/INDEX: UNG

STOCK PRICE: 11.50

OPTION PLAY: Sell Put, Buy Call

SELL: AUG 11 Put @ .25

BUY: AUG 12 Call @ .26

NET COST: .26 – .25 = .01

UPSIDE BREAKEVEN: 12.01

MAX PROFIT: Unlimited after $12

MAX LOSS: Unlimited under $11

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes