Thursday, June 3, 2010

UNG Straddles: Profit Up or Down

UNG has risen significantly today and is now sitting close to $8. Time for our favorite straddles, which were wildly profitable last month.

UPDATE: And a perfect 8-8 at 2:30PM.

A move of about 7% makes the position profitable. Computed with StraddlesCalc Tool.

Please do your own due diligence. This is not advice. Options are very dangerous and may cause 100% loss.

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Bike said...

Hello - you wrote, "A move of about 7% makes the position profitable."

Is that a 7% move in the underlying stock price, or in the option pricing?

Thank you

The Shocked Investor said...

Hello Bike,

That's the move on the underlying stock to guarantee a profit. Note that it's the maximum move required, the actual move needed may be smaller (which happens if the move happens with several days left to expiration, as is the case right now).

Bike said...

Thank you.

Do I understand correctly that in order for the trade to be profitable (using the second/update display) - "UNG" would either need to close above ~ $8.59 or below ~ $7.41?


The Shocked Investor said...

UNG would need to close at most above $8.497 or below $7.337, based on he price at the time ($7.90). Since then these values have moved, they move all the time, use the tool to get the current values.

Bike said...

Am I correct then in believing that you can get a pretty close estimate of the $$ move needed by summing the Call and Put premiums ($0.25 + $0.33 = $0.58 in this case) and adding and subtracting the summed amount to/from the strike price?

E.g. $7.90 + $0.58 = $8.48
$7.90 - $0.58 = $7.32

Thank you

The Shocked Investor said...

It could happen but that could also be way off, it would only happens if the number of calls is very close to the number of puts.

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