FWIW
Natural Gas ETF call action points to higher prices
Tue Oct 14, 2008 2:23pm EDT
By Doris Frankel
CHICAGO, Oct 14 (Reuters) - Option investors on Tuesday appear to be betting that natural gas prices will heat up within the next few months as they accumulate call options on an exchange-traded fund tied to the commodity product.
Shares of the United States Natural Gas Index UNG.A rose 1.58 percent, or 47 cents, to $30.20 in afternoon trade.
The fund, which tracks natural gas prices through futures and forward contracts, notched a 52-week low of $29.02 on Friday. The ETF has shed 114 percent from its July high of $63.75 as of Monday's close.
In the options market, volume swelled to double the normal daily turnover as 44,000 call contracts changed hands vs. only 2,339 puts, option analytics firm Trade Alert data show.
Investors often turn to equity call options allowing them to buy the company's stock at a given price and time, to speculate on share price appreciation.
Players focused on the November $31 call strike. More than 36,700 contracts traded in that strike price against existing open interest of 823 lots, indicating fresh positions were initiated, according to Reuters data. The November $31 call option fetched $2.20 a contract, up 30 cents on the day.
"Today's activity appears to reflect some speculative call buying on expectations natural gas prices might heat up between now and November options expiration," said Frederic Ruffy, options strategist at Web site WhatsTrading.com in New York.
Front month November natural gas futures on the New York Mercantile Exchange NGX8 rose 9.7 cents to $6.785 per million British thermal units, lifted by prospects of cooler weather in consuming regions in the U.S. Midwest and Northeast and stirring tropical activity in the Atlantic Basin.
"We are seeing some activity in the call options but not necessarily institutional, said Chris McKhann, an analyst at Web information site optionmonster.com in Chicago.
"Natural Gas prices can be extremely volatile and traders are looking to profit from an upside bounce in the fund."
The options barometer of perceived risk or overall implied volatility on the fund |
