Bearish Butterfly in UNG

[Steven Place]

Natural gas is going parabolic with this terrible cold weather and a bullish EIA number.

Going to use this opportunity to put an income trade on.

Sell March 26/22 Put Spread @ 1.56

Sell March 26/30 Call Spread at 1.28

Max risk is 116 per spread, we’re going for 25% return on risk.

This is a tiered trade, so 1/3 position here.

If we move to 23 or 29 will add to the trade.

 

[Steven Place]

I’m closing out this trade at breakeven for a few reasons:

1. The delta is too high, and adjustments are too expensive and don’t make sense
2. The actual volatility in UNG is much higher than I anticipated
3. The option skew is making this trade… the best way to put it is “goofy.” That’s one of the reasons the delta is so high.

So I’m working out of the trade for breakeven to a slight gain. If you want to stay in the trade, I would buy enough March UNG puts to get your delta down by 75%

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