United States Natural Gas Fund, LP (UNG) 10/28/09 PriceWatch Alert Targets 16.17% Downside Protection

Posted: Wednesday, October 28, 2009 8:14 AM EDT
By: Market Intelligence Center Staff

United States Natural Gas Fund, LP (PCX: UNG) closed yesterday at $10.82. 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 10.63 and resistance in the 10.97 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 $9.07 area. That is also the break even stock price for this trade. This covered call has a 171 day duration, provides 16.17% downside protection and a 10.25% assigned return rate for a 21.89% 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 $4.20 debit. The trade has a 171 day life and would provide 14.97% downside protection and a 19.05% assigned return rate for a 41.00% annualized return rate (for comparison purposes only). [WBA-Seven Summits Research]