Sponsored By:

U.S. Natural Gas Fund (UNG)

August 25, 2008

Dear Fellow Options Trader,

The U.S. Natural Gas Fund (UNG) is a commodity pool that issues limited partnership interests that trade on the American Stock Exchange.

For the year, the UNG is down just 1%, but it traded from $36 to $63.89 before round-triping back to $36. From the extremely large call spread we're tracking today, someone really likes the upside for Nat Gas over the next eight months!

Our HeatSeeker system picked upt that someone bought 10,000 of the UNG April 36 Calls (UNEDJ) for $5.20 and sold 20,000 of the UNG April 60 Calls (UNGDH) for 83 cents. That is a 1 x 2 spread thus done for $3.54 ($5.20 - $1.66).

This spread certainly makes sense to me, as I expect Nat Gas to rally off this $7.70 level and be in the $12 per million BTUs or better this winter.

But as always, the options tell us the timeframe that the investor set for this bet. They picked an option that expires eight months from now. That leaves plenty of time for a cold winter, which is what the Farmer's Almanac is calling for!

I like mirroring these investors' bets but with a bull-call spread that gives us a little more leverage.

I recommend buying the UNG April 37 Calls (UNEDK) for approximately $4.80 and at the same time selling an equal number of the UNG April 42 Calls (UNGDP) against them for approximately $3.10 for a net debit of $1.70.

For this spread, I will set a stop loss at 90 cents. Remember, the exact prices you pay for each leg of the trade don't matter, provided you can initiate the spread for a net debit of $1.70 or less. And, if the trade turns against us and the value drops to our 90-cent stop-loss level, we will immediately exit.

Good luck and good trading!


Jon "Doctor J" Najarian
Editor
ChangeWave Options Trader