Today I decided to open a position in UNG, an etf that "tracks" the price of natural gas. As I have mentioned in my previous posts for Chesapeake Energy, the ratio of natural gas and oil prices is out of whack with the historical average. As a result there needs to be a correction either in oil or natural gas prices. Although I do feel that oil prices are a bit ahead of themselves, natural gas prices are at levels that have not been seen since 2003, and the shift towards "greener" energy should increase demand for natural gas in the short term. As such, I think that this is a good way to play natural gas prices (though there could be a debate about the ability of UNG to effectively track natural gas prices). For the purpose of covered calls positions, this type of ETF can actually work very well because not as much of a gain is needed to make the same profit. For example, for this position, the etf cannot decrease more than 1.4% overall by expiration; however, if I were to only buy the stock it would have to go up by 2.8% to make the same profit. For this reason, the issue of "contango" is not as much of a concern. The performance metrics are below:
6/10/2009 -- Bought 100 UNG @ 14.20
6/10/2009 -- Sold To Open 1 UNG June $14 Call @ 0.63
The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1357.00
Downside Coverage: 4.4%
Possible Max Upside: 2.8%
Annualized Max Upside: 102.21%
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