UNG: Rich Call Skew Opportunity


  • UNG is a liquid ETF with plenty of skew on the call side.
  • Implied volatility is currently well above average in the December & January cycles.
  • The sale of call ratios perform well in this environment.

Recently we sold option premium in United States Natural Gas Fund, LP (UNG) where we sold the regular January $18/$15 put spread along with the $32/$35 ratio spread. We sold the position for $2.06 per combo on Monday of this week (28th) and as we can see below, the combo is now worth $1.59. The present price of UNG comes in at $21.72 per share.

UNG Options Play

UNG: Present Share-Price & Combo Price (December 1rst) (Interactive Brokers)

So why did we sell a ratio spread on the call side instead of a more traditional call spread for example which would have turned the combo into an iron condor? The answer is skew which UNG continues to have in spades at present on the call side. What this means is that the fund’s calls trade much richer than its associated puts. Furthermore, by selling a ratio, we can take advantage of this skew by selling multiple calls ($35 strike) against calls that are less out of the money ($32 strike). This enables us to widen our breakeven up to a higher price which comes in at $40.06 on the upside.

Call ratios work well because of the embedded long call spread in the setup. Call spreads trade cheaply in call skew setups which means those long-call spreads can be bought for pennies on the dollar. We intend to take this off if we can buy back the combo for $1 each.

UNG: Rich Option Skew

UNG: Call Option Skew (Interactive Brokers)

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UNG Possibilities

Hign IV In UNG

Hign Vol In UNG

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Breakout Pending In Benchmark Electronics (BHE)

BHE Symmetrical Triangle (Bullish Pattern)
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Broken Wing Butterfly In ARK Innovation ETF (ARKK)

Risk/Reward Profile In ARK Innovation ETF (ARKK)

88% POP IN Butterfly Trade-In ARKK

The above chart breaks down the details of a recent trade we did where we sold a broken wing butterfly in the ARK Innovation ETF (ARKK) in the regular May monthly cycle. The strategy involves the purchase of the $53 put, then the sale of two $52 puts, and then the final purchase of the $48 put. I believe we collected $0.40 for the trade which means our breakeven is $50.60. At present, as I write, ARKK is trading above $66 a share. The chart above depicts a probability of profit of 88% in the trade.

Why is this so? The reason this strategy has such a high probability of profit is that when you collect money on the position, you are eliminating any risk to the upside. So basically, the position over the next 60 days or so can go anywhere to the upside but also can drop to the $50.60 level (Remaining above) and the trader will still come out winning.  In an ideal world, we want ARKK to slowly drift down to ultimately rest at our short strikes of $52 as this would potentially increase our gains in the position. We acknowledge that the probability of this happening is remote which is why we like to set up these strategies to win from the outset.

ARKK ETF approaching support

ARKK – Buy signal may be at hand

As we can see from the technical chart above, shares of ARKK have solid downside support just below the $50 level and the weekly MACD is very close to giving a buy signal. Suffice it to say, we may not get the down move we are looking for if indeed the MACD moving averages cross-over but we will still come out winning nonetheless.


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Becoming Even More Bullish In Barclays – Selling CIG

Taking off the BCS (Barclays) $11 call we have on in the December 2021 cycle for a scratch because of reasons we will discuss in the weekend report. (We have become more bullish)
Trade Fill : Bought back BCS $11 December call 2021 for $0.45 per contract.
Also Companhia Energética de Minas Gerais (CIG) for once has had a down day. Since we have nice profit in his long stock play and because we may have a short-term double top in play here, we will get out. We can always re-enter if we get an attractive entry.

Potential Double Top In CIG

Potential Double Top In CIG Playig Itself Out

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Strong Upside In Hello Group Inc. (MOMO)

Many times, technical analysis gets a bad rap but unfairly so in our view. In fact, when one accepts the pretence that share-price action on the technical chart informs the investor of everything, then investing can become a whole lot easier. We believe that every possible piece of information be it fundamental, psychological has already been digested by the market or the share-price behaviour on the technical chart. This is especially true on long-term charts because we are dealing with far more information. 

We aim as much as possible to invest in what is in front of us and not what the fundamentals may necessarily say. This is the Achilles heel with respect to just investing in a company for fundamental reasons in that one may have to wait years for a bullish trend to finally get underway. Studying the technicals however in conjunction with the fundamentals brings clarity to the situation as the technicals inform us when a trend may be changing for example. 

Hello Group´s. (MOMO) long-term MACD is very close to giving a long-term buying signal. We have vetted this company and MOMO continues to report strong profitability, has robust cash levels and is trading for pennies on the dollar. Suffice it to say, this MACD crossover has a strong possibility of playing itself out here. Let´s see what happens. 

Verdict & Plan Going Forward for MOMO: Remaining long until the monthly technicals get back to oversold levels. The firm´s valuation with an ultra-low book multiple of 1.2 has plenty of runway for gains here before we return to a more normal valuation for this stock

MOMO -Pennies on the dollar

MOMO -Pennies on the dollar

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Companhia Energética de Minas Gerais (CIG) On The March

Really cheap Brazilian utility player here with a great dividend and excellent profitability. Again, because of the excellent dividend as well as the lack of any real opportunity in its options markets, we decided to go long stock. Although shares have rocketed out of their 2020 lows, the weekly chart and specifically the low stochastics definitely point to more upside here. CIG is undergoing significant elevated investment in the next few years which should really move the needle for this firm. In fact, the almost 10 billion Brazilian Real of earmarked divestments will obviously affect profitability in the near term but these liquidations should in no way overshadow the 22+ billion Real of core-based investments scheduled to take place over the next 3 to 4 years. Suffice it to say, going forward, it is all about increasing shareholder capital so more returns can be made off that very same capital. 

Upmove coming in CIG

Upmove coming in CIG

Verdict & Plan Going Forward for CIG: We will make a decision on CIG when the weekly stochastics return to oversold conditions. Utility companies are slow burners in that one does not see the same types of capital gains compared to other sectors in the long run. 

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Market Pricing In Major Move for Frequency Therapeutics

There have been plenty of things happening in Frequency Therapeutics, Inc. (FREQ) of late. Recently, the share-price responded nicely to studies done in FX-322 (Hearing Loss). As we can see from the sky-high volatility in this stock at present, the market is pricing in a major move. We intend to take advantage of this fear by selling buckets of premium. Something like the sale of a strangle or an iron condor looks to be the strategy in here at present. With these levels of volatility, one should be able to put their short-strikes 20 to 40% away from the current share-price.

High Implied Volatility In FREQ

High Implied Volatility In FREQ

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High Volatility in Seelos Therapeutics Brings Opportunity

Volatility sky high in Seelos Therapeutics

Volatility sky high in Seelos Therapeutics

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Enzo Biochem Has Momentum On Its Side

Enzo Biochem is definitely taking advantage of the pandemic. Sales for its testing equipment, etc soared in its second quarter to come in at almost $32 million. This was a huge gain over the same quarter of 12 month prior. The market consequently rewarded the stock once the numbers were released.

Being a low priced stock, Enzo at approximately $4 a share brings opportunity to the table. The reason being is that despite the strong rally today, shares are still trading at a lower valuation that the stock´s 5-year averages. Furthermore, being an optionable stock, implied volatility has spiked to approximately 240% in the back month. This means we have the possibility to reduce basis if that is indeed our favoured startegy.

If indeed, we have a breakaway gap here in play, price has no business dropping below the underside of the gap. The $3.60 level for example should not be breached if this is the start of a new bull run in this stock. Covered calls or naked puts look attractive in ENZ at present due to one´s ability to defend if needs be.

Volume spike in Enzo Biochem

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