UNG Weekly Squeeze
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UNG Weekly Squeeze

John F. Carter 12/16/2013

Welcome to the free video for Simpler Options. So let's take a look at the UNG trade and at this point we have the squeeze. We're one dot in, the week is over and the question becomes you know, are we there, are we done yet kind of a thing.

Well, let's switch over to the natural gas futures so we can look at the voodoo lines. We talked about this in the ETF course, how the importance of actually looking at the underlying futures contract. I am looking for a couple more days of strength. See if we can get 448 and then 461, OK. But at those levels I would like to start taking some of this off the table.

So for UNG we've got a couple of different positions here that we're managing. First we've got the whale trade. This is the one where we've got the Delta 20 and the Delta 70 options, which currently are actually Delta 49, OK. That's actually -- that's where you start really making...so in something like this. The reason this is so powerful is when you have Delta 20, the first dollar you make 20 cents on your options. OK. The second dollar your Delta increases so you'll make like 38 cents. And then the next dollar the Delta increases so you're making 49 cents. So it really runs for really really cheap when you buy Delta 20 options, if suddenly these are Delta 80s then suddenly in this trade if you know, where you have 10 contracts, you know on the first dollar you're making you know, $200.00. But by the time you get to the 6th or 7th dollar you're making $800.00 for every time UNG goes up a buck. That's where you really cash in because you're able to buy a lot of these.

But at the same time we want to be conscious of the fact that you know, maybe this thing is done. So what we like to do you know, with these Delta 70 calls is start selling these off to start reducing that risk and paying for the trade. Take a few of these off but in general I want to keep these and see. In a perfect world what we want to do on this is we want to stay in a good chunk of those Delta 20 options as long as this momentum is going higher, OK. And then only exiting it when it loses momentum, all right.

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