Since mid 2008 natural gas has been completely decimated by the market with the past eight months have been particularly bearish, cutting natural gas stocks in half. Take a look at UNG for instance, down close to 60% from it’s June high of 12.32 a share. So with natural gas bouncing off it’s all time low is it time to take a bullish stance on the commodity? Recent options activity has spiked dramatically, with a call to put ratio of more than six to one. With options activity a good forward looking indicator of investor sentiment, this is generally a very bullish outlook. However, according to Option Monster, the majority of the volume is contained in a single spread by one investor. While all time lows are attractive, tread carefully when chasing another individual’s trade..
“optionMONSTER’s systems show that a trader bought 20,000 March 7 calls for $0.11 and sold the same number of the March 8 calls for $0.03. So the trade cost $0.08, or a total of $160,000. If the UNG is above $8 at expiration, the spread will be worth $1.84 million, but that payout comes with a very small probability. The delta of the March 8 calls suggests that there is only a 7 percent probability that the UNG will be above that price at the expiration. ”
See the data here: January 24, 2012: Large bullish bet on natural-gas fund.
