Profit With UNG Straddles: All Positions Profitable, Average ROI +87% to +157%.

UNG is in the sweet spot for profits with straddles. Its huge volatility makes ideal to profit with it goes up and down - or to profit regardless of direction.

The chart below shows the profits (ROI) of straddles and strangles on UNG during the last 2 weeks. The red dots show straddles bought every day of the week, and sometimes twice on the same day when there were large price swings.

The green text shows the profit for each position. The top chart is UNG itself, the lower two charts are examples for the two corresponding options of the first point bought (on Friday August 28, Call 12 and Put 11).

(click to enlarge please)


$1 Strike Difference

All positions were profitable, every single one of them. When using a strangle with $1difference in strike prices (i.e., the call strike is $1 higher than the put strike) the average ROI was 87.18%. This means that for a total initial investment of $20,000.00, the positions returned $37,435.00. The table below shows the data for positions of $1k on each side of the straddle ($1k in calls, $1k in puts), with the number of contracts bought rounded to the nearest integer.

(please click to view)

$2 Strike Difference

Again all positions were profitable. When using a strangle with $2difference in strike prices (i.e., the call strike is $2 higher than the put strike) the average ROI was 131.13%. This means that for a total initial investment of $20,000.00, the positions returned $46,295.00. Here is the table:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Extended ROIs
 
However, the above does not tell the whole story. With a highly volatile instrument such as UNG, it is possible to profit once again if the prices reverse. This is precisely case for UNG. All call options bought before Thursday September 3rd were very much worthless by Friday (while the puts were worth a lot as UNG price had collapsed). Then, after Friday, UNG reversed and went up again, thus making those calls valuable again. Those calls are then sold at good premium, extending the profits even more. The chart below shows what happens:

 











Here are the tables for the extended profits (marked as -X).
 
$1 Strike Difference
 

The average ROI is now 114.38%, bringing the $20,000.00 investment to $42,875.00:

 
 
 
 
$2 Strike Difference
 

The average ROI is now 157.84%, bringing the $20,000.00 investment to $51,645.00.
 

 
 
 
 
 
Conclusion
 
This is possible because natural gas, and UNG in particular, are such volatile instruments. The beauty of using straddles and strangles is obvious as you could almost have thrown darts and obtained a very significant profit, and you do not need to worry whether the stock goes up or down. This is the same technique we were applying in the past with IWM and UCO when they were showing similar volatility. This volatility is fleeting, eventually it goes away. Use it while it works.
 
 
Warning:
 
Options are very dangerous and should only be used by experienced investors. Please make sure you do your own due dilligence. The above is not investment advice.