United States Natural Gas Fund, LP (UNG) 10/15/09 PriceWatch Alert With 18.18% Downside Protection

Posted: Thursday, October 15, 2009 8:42 AM EDT
By: Market Intelligence Center Staff

United States Natural Gas Fund, LP (PCX: UNG) closed yesterday at $11.00. So far UNG has hit a 52-week low of $8.94 and 52-week high of $31.42. UNG has been showing support around 10.70 and resistance in the 11.52 range. Technical indicators are Bearish. UNG appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at an Apr '10 10 covered call (UNY DJ) for a net debit in the $9.00 area. That is also the break even stock price for this trade. This covered call has an 184 day duration, provides 18.18% downside protection and an 11.11% assigned return rate for a 22.04% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the UNG Jan '11 5 Call (ZZM AE) and selling the Apr '10 10 call (UNY DJ) for a $4.25 debit. The trade has an 184 day life and would provide 15.91% downside protection and a 17.65% assigned return rate for a 35.00% annualized return rate (for comparison purposes only). [THA-Seven Summits Research]