UNG Play...

T

TheGoonior

UNG appears to be setting up to one of my favorite chart patterns, and it's almost time to pull the trigger.
I haven't been watching UNG for awhile, so I didn't catch the short (inverse pattern which triggered on 5/3) or the previous long setup (which occurred on 4/11).

Daily chart is shown and it's made a bunch of lows followed by an up-bar which didn't break the low (short term support).
In addition, this is a higher-low off a previous higher-high.
Resistance areas are between 12-13 in the near term.
Typically you can play this with a fairly tight stop, as "proper" behavior for this setup should give you very little heat.

I will probably play it in two parts:
1) Short-term = Jul11 C (Stk=11) You get a little less bang for your buck buying July over June, but it's not much, and I like a bit more time for things to work out (deltas about equal, about 20% less gamma).

2) Long-term = Jan12 C (Stk=6). I will buy the Jan12, 6C as it is quite DITM and a good proxy to the underlying. Normally you can work the ask to chop off a bit of the premium. I may also sell a few calls (say Oct 14/15) to offset this.

I need to see UNG break the previous high to trigger my entry, though. If it gaps tomorrow, I'll most likely wait for a pullback (unless it's only a few cents).

Anyway, we'll see what tomorrow brings.
 

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Wasn't really paying attention this morning, but priced had not moved too far from the trigger point, so I'm in with the July 11 calls.
 
The double bottom forced me to unload the un-hedged portion of my position, but I'm still holding the July 11/12 vertical.

SHORT TERM OUTLOOK:
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The chart pattern is starting to show a possible short-term sell signal (basically the opposite of the buy setup), so we'll see how it goes.
The vertical is currently profitable, but there's quite a bit of time decay left on the short option.

Possible short would be the July or Oct 11/12 Vertical Put spread (depending on how long I want to give the trade to work out, since the overall risk is about the same. The lower delta for Oct means you don't get as much punch for a quick downward move, though)
Looks like a short term trigger would be below about 12.10.

LONG TERM OUTLOOK:
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Appear that UNG has made a pretty decent bottom, so longer term verticals also are starting to appear fairly attractive. LEAP vertical calls in the 12/13/14 strikes look decent, especially if you trade multiple contracts and leg in to the short side using a tight stop (say on a 15 or hourly chart with most recent support, which should give you a tight $0.10-$0.20). The lower delta of the short call means it doesn't lose that much if the small move against you occurs (in which case you're in the vertical as originally planned) , but if UNG takes off, you are now long with a good position.
Short term is oversold, so there's no reason not to wait for a pullback first. Patience rewards.
 

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