A Big Money Bullish Bet On Nat Gas

Hey Traders,

While commodities have been forecasted to do well as hedges against inflation …

In a lot of cases, we’re simply not seeing that play out.

Many names in gold, silver, and uranium have been rocky at best, if not sometimes outright letdowns …

Natural gas is another sector that’s been struggling to break out from the market turbulence …

But this Big Money bet says not to give up quite yet.

Temps are still cooling down in much of the northern hemisphere, and gas prices are expected to rise, although a warmer-than-expected December may have led to muted demand. 

Coupled with the wild swings of the market, some investors might be looking to allocate their resources to … well, other resources.

But that could all turn around …

And one Big Money bull is betting big on this nat gas name.

Here’s what we’re seeing.

United States Natural Gas Fund (Ticker: UNG)

UNG has been having a rough go over the last several months, tumbling from an October high of $22.10 to as low as $11.90 earlier this month.

And while UNG shares have managed to recover somewhat

They still closed flat on Tuesday at $12.51.

But Big Money opened up a bullish bet on this nat gas stock, which I found particularly interesting.

A move of this size could speak to UNG’s strength …

Or perhaps upcoming natural gas sector strength as a whole.

This trader started their bullish position build by selling 9,886 contracts the February 11-strike put for $0.47, bringing in a total of $464,642.

They then added on a call spread, buying 9,886 contracts of the 14-strike call for $0.80 (which would have cost $790,880) and selling the 18-strike call for $0.29 (bringing in an additional $286,694).

In total, this trader only paid $0.04 per contract ($39,544) to establish this aggressive play on a leading natural gas name.

And I will admit, even if UNG isn’t necessarily my top choice, right now looks like a good time to play the stock.

Not only are we looking at potential price fluctuations in the immediate months ahead for natural gas a whole …

But traders don’t have to pay too much of a premium to bet on UNG specifically, with UNG’s 30-day implied volatility in just the 20th percentile of its annual range.

What’s more, UNG’s 30-day historical volatility (lavender line) sits just slightly above the implied volatility (red line), so traders may actually even get a little extra vol for their money.

In terms of UNG’s typical daily volume in the pits, this trade was also notable for its size.

This trader was responsible for just under 10k puts in UNG’s pits on Tuesday …

And UNG only saw a total put volume of 13,719 puts for the entire day (which is about in line with its typical daily put volume).

On the other side of the aisle, UNG saw 142% of its typical call volume on Tuesday, with 38,027 calls crossing the tape … and nearly 20,000 of those were directly attributable to this specific trade.

Of course, with call open interest at 120% of its typical amounts, and in the 97th percentile of its annual range, heavy call trading isn’t out of line with the kind of attention that UNG has been seeing lately …

But the fact that this trader is so willing to make a trade of this size speaks to their confidence in their position.

And in fact, the February 14-strike and 18-strike calls are now UNG’s second and third most populated contracts, coming in only below the January 20-strike calls with just over 22,000 contracts open.

I think there are other natural gas plays I would like better (for example, Devon Energy (Ticker: DVN)), but this big bullish bet on nat gas tells me there’s definitely a reason to keep an eye on the sector in the weeks ahead.

Your Only Option,

Mark Sebastian

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