Subs: Trade for Monday Morning

• stevenplace
• June 8th, 2009

As I mentioned on Stocktwits Brunch on Saturday Morning, the dollar strength could carry over into Monday and cause weakness in the equities market. The hedging strategy I mentioned in the previous video is doing well and I’ll continue to hold while getting positive delta on dips in particular names. One in particular I’ve been watching is down to a price point in which I’ll be looking to get long for a longer term hold. Log in to read more:

In the commodity sector one of the most volatile areas we’re seeing right now is in natural gas. The volume and price movement has been nauseating if you’ve been swing trading it. I think, however, a longer term premium-selling strategy in UNG is a good play here.

The idea is to sell puts and if assigned on expiration, to get into covered calls. We’re looking for double digit returns on our investment in a couple months. Here’s the trade:

Sell UNG Jul 14 Puts for 1.25 or better

So selling that contract puts your basis at (14 – 1.25) = 12.75, which is the all time low for the etf. We’re also looking at a return on your basis of (1.25/12.75) = ~10% in 40 days, not bad for a writing strategy. Current vol in the options gives you about a 2/3 chance that this will be a profitable trade.

For me, this is a long term play and I’m not setting a stop for it. I plan on using this as a method of getting assigned and then selling calls against my position. I’m looking, over time, to pull > 30% annualized out of this strategy.

If you want to be in for only a trade, I’d put a stop in below 13. So your current risk is about 60, so that’s a 2R trade.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: ung

blog comments powered by Disqus