Cold weather opening up options opportunities

DAILY MARCH NATURAL GAS FUTURES CHART

The first item I notice and the most important item that I believe is that we are at the highest price in natural gas in almost four years! What that has caused on this monthly natural gas chart below is a "break-out" of the trading range that started in about August of 2010. More importantly to me though, is that it is a "break-out" to the upside. The reason I call this a "break-out" to the upside is because the market has closed above the top line of the Bollinger Bands (light blue shaded area).

MONTHLY NATURAL GAS FUTURES CHART

OPTION PLAY:

Since, I am now bullish on this market, there could be several ways to play it with options. You could buy straight call options or bull call spreads in a 3-to-1 ratio with a put for a hedge or "insurance" in case the trend changes on a dime and the market falls. Another potential play would be to sell naked options or option spreads — again with protection maybe in the form of a futures contract or with other option plays. Remember, when you sell naked options you have unlimited risk and should have a "well-funded" account of risk capital. 

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About the Author
Matt McKinney

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.

Futures and options trading involves substantial risk and is not for everyone.

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