Option Trade of The Day: United States Natural Gas Fund (UNG)

One of the most interesting “smart money” trades we came across yesterday was with Financial Select Sector SPDR Fund. (NYSE: UNG).

If you’re new here, a “smart money” trade is a relatively large volume option trade most likely made by a pro trader. The idea is to analyze unusual options activity, identify an interesting “smart money” trade, and then make our best guess as to:

  1. Which direction the trader thinks the stock is headed
  2. How much they think it will rise (or fall), and
  3. In what time frame this will all happen.

If we like what we see after putting all these pieces together, we can mimic the “smart money” trade (on a smaller scale), and potentially ride alongside our pro trader to profits. With all this in mind…

A Pro Trader Just Made $2,000,000 Betting that UNG will Stay Above $19 For the Next 15 Weeks

On Tuesday, October 05, 2021, a pro trader seems to have sold 5,000 of the January 21, 2022, $19 put options on UNG for $4.00 per share. His inflow was $2,000,000.

UNG – Option Trade

UNG will need to stay above $19 in the next 15 weeks so that the trader can buy back the 21-Jan-22 $19.00 put options for next to nothing. And then our “smart money” trader will get to keep the $2,000,000 he had received when selling the 21-Jan-22 $19.00 put options.

On analyzing the chart of UNG, the stock seems to have broken out of a double bottom pattern (marked in pink color) and has currently moved higher. The stock is also trading above a gap support area (marked as a blue color dotted line), which is another strong support level. The stock had moved higher from the gap support with very high volumes (marked as a green ellipse). All this makes it likely that our pro trader is bullish on UNG.

UNG – Weekly Chart

This lends credence to our conclusion that the pro sold these put options, as opposed to buying them.

If you agree and would like to mimic this trade, here’s how:

Sell to open the January 21, 2022, $19 put options on UNG for $4.00 or better.

As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.

Happy Trading!

— Trades of The Day Research Team

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