I decided to open another position in UNG, after it has decreased more than 15% from its price on June expiration. I still believe that the price of natural gas is hovering around its bottom, and it is only 3% above its 52-week low, which means there is much more potential upside than downside. It has not participated in the run-up of commodity prices since the beginning of March, and is therefore pretty safe in my opinion. As I had a previous position in UNG which was called away at a loss (for the actual stock, though the CCIP position was not a loss), I did not want to create a wash sale by buying new shares within the 30 day window. As a result I decided to instead sell a cash-secured put for August. This put would make my cost basis 6.6% below the current 52-week low. I think this position will end up doing quite well, and I wouldnt be opposed to selling another cash-secured put if UNG decreases further. Just as a note, I believe for those of you who are not covered call investors, that cash-secured puts offer a very interesting way of starting a position in a stock, but possibly lowering your cost basis at the same time. The performance metrics are below:
7/2/2009 -- Sold To Open 1 UNG August $13 Put @ 1.15
The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Put Sale Profit: $115.00
Downward Movement Required (Put Sold When UNG@13.04): 0.3%
Possible Max Upside: 8.85%
Annualized Max Upside: 64.58%
Saturday, July 4, 2009
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