Natural Gas – Step Back and Look Again - The Short Term TradeRecently, the energy markets have seen extreme volatility. Natural Gas has fallen roughly 40% YTD. In the past 10 days, the commodity has fallen nearly 10%. There are many factors which could lead to high volatility in commodities. The past two weeks have focused on supply/demand concerns. Supply/Demand: On 6/24, the EIA (Energy Information Administration) reported natural gas stockpiles of 2,651 Bcf. This is a 3.6% increase from the previous week. According to the EIA website, current stockpiles are 31.2% great than last year. Has our economy improved that much in 1 year that we need 31.2% more Natural Gas?  http://www.eia.doe.gov/oil_gas/natural_gas/ngs/ngs.html Short term traders view the year-over-year surplus in Natural Gas as a bearish indicators. Below is the 10-day chart for UNG:
We see that UNG has been ranged bound with resistance levels at: · 50 Day Moving Average These key resistance levels act as technical barriers that need to be overtaken before UNG can expect a positive price movement. If UNG proceeds with the bearish momentum it has developed, natural gas may revisit the yearly lows. On the contrary, if UNG were to move upward, breaking the 200 Day MA, UNG could rally for another week. Looking deeper at the option contracts, option traders have positioned themselves for a pullback in UNG. The overall Open Interest Put/Call Open Interest Ratio is roughly 1, meaning for every purchase of 1 Put, 1 Call is bought. The last time that the Put/Call Open Interest Ratio was 1, UNG sharply retraced from the 52-week high. Could this be a sign that Natural Gas is overbought and due for a correction? Time will tell…. For those looking to commence a bearish position on UNG, consider the following analysis: Buy one July $14 strike put option contract and one AUG $16 strike call option for a total cost of $146 (.66*100+.88*100). Simultaneously sell one AUG $12 call option contract. The final cost for your Bearish Calendar Spread should be a credit of $124 with a Break-Even price of $13.57. Taking a look at the bigger picture, it seems that Natural Gas is likely to fall. But if political tensions rise again, prices could spike. Disclosure: At time written, author did not own any securities of UNG. Gold - Where are you going?
Recently, the gold markets have seen extreme volatility. From April to May, the price of gold nearly increased $100/oz., roughly 12%, pushing GLD toward $97. Worries of inflation and the depreciation of the dollar have fueled gold to its 3 month highs. Contrary to the prior months, June has been retracing gold’s previous gain. For the month of June, gold has fallen approx. $80/ oz., roughly 8%, bringing GLD to $90. Can GLD break the downward momentum? To understand this, we must look at the details.
Below is the 6-month chart for GLD:  We see that GLD has reached several key support levels:
These key support levels act as technical pivot points. Pivot Points are technical price points which act as support or resistance levels. If support remains intact, one could assume that GLD will project upward towards its resistance level around $96.50. On the contrary, if support levels were to be broken, the trend could drag GLD lower towards the 200 Day-MA of $85.50.
Would sitting on the sideline and waiting for a clear direction be the smart play? Option traders don’t believe so… Examining the front-month July option contracts, one could assume that option traders are taking a bullish stance on the precious metal.
For those looking to commence a bullish position on GLD, consider the following analysis: Purchase one July $90 strike call option contract and one July $92 call option contract for a cost of $355 ($2.250 * 100 shares/contract + $1.30 * 100 shares/contract). As a suggestion to hedge your position, sell two July $95 call option contract for a cost of $110 ($.55 * 100 shares/contract). The final cost for your Bearish Put Spread should be $245 with a Break-Even price of $92.23. ***Note of Caution: If GLD breaks below technical support, a quick downside movement could occur. Disclaimer: At time written, author did not own any securities of GLD. Author did own AUY Jul Calls. Throughout this passage, opinions are only stated. Trade recommendations are strictly speculative, and do not guarantee anything. I highly advise everyone to do your own research and Due Diligence before investing.
Option Traders bearish against Coach IncCoach Inc., the marketer of fine accessories and gifts for women and men, has seemed to recently shrug off the recession. Shares of the company rose approximately 3.4% Friday ending the week on a positive note. However, option traders have positioned themselves for bearish future. These traders are expecting a possible retracement ranging from 5% to 13%. Moreover, Coach has been trading near its 6 month high. These bearish option traders may be correct to anticipate a pullback from these high levels. In support of their views, analyses of the details are needed. The Put contracts with the highest levels of open interest converge upon the $25, $24and $23 strike.  As noted above, the highest level of open interest resides on the August $24 Puts. The strike price which this particular contract holds projects an 8.5% retracement of the stock before the contract would be in-the-money. For those looking to commence a bearish position on COH, consider the following analysis: Purchase one July $25 strike put option contract and one August $24 put option contract for a cost of $270 ($1.10 * 100 shares/contract + $1.60 * 100 shares/contract). As a suggestion to hedge your position, sell one August $23 put option contract with a strike price of $22.5 for a cost of $110 ($1.10 * 100 shares/contract). The final cost for your Bearish Put Spread should be $380 with a Break-Even price of $24.06. As the US economy revives from the recession, it is important to acknowledge the rate of gain of US Retail shares. In some cases, if the shares are overpriced, it may be wise to step-back and re-examine the upward movement a little closer. Disclosure: At time written, author did not own any securities pertaining to the company mentioned above. Disclaimer: Throughout this passage, opinions are only stated. Trade recommendations are strictly speculative, and do not guarantee anything. I highly advise everyone to do your own research and Due Diligence before investing.
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