Bullish Option Moves in Energy and Financials
I am making a bullish call and am selling UNG puts (Oct $18 - UNEVR) for $6.5 this Friday morning (September 18, 2009). While I don't like UNG longer term because I am concerned about the premium in the stock price (4.58% over NAV today, but was almost 20% at end of August) coming out with a ruling from the CFTC, still it is for now the only pure play on nat gas prices. And I see those prices recovering to at least $5 just on the idea of an economic recovery and even before the inventory runs down.
Another Nat Gas play is PennWest (PWE), a major Canadian energy producer based in Calgary with more than 50% of its production in gas. I have owned PWE since 2002, in the form of Petrofund before that company's acquisition by PWE. Today I sold the December puts in PWE $15 for $1.60 (PWEXC). This gives me some upside from today's $14.40 price and downside protection to $13.40, which has been the recent base level for PWE. PWE was above $30 for two years up until July 2008 and has been over $40 in the past six years. A return to the $30 level will occur with a firming of Nat Gas prices above $8 / mmcf.
I also am buying more UYG calls. I see UYG at $10 by the end of the year and it is now just above $6. There is a lot of room for improvement in the banking sector, even though it has come a long way already. The sector was down 85% (XLF went from $38 in 2007 to $6) in March. UYG was above $20 just prior to the Lehman collapse. It has retraced much less than half of that. I think another 30% to the upside is very likely before the "V" is completed, bringing us back to August 2008 levels. A 30% move in XLF will be a 60% move in UYG.
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