Options Trading News

The U.S. Natural Gas Fund has been rebounding in the last couple of weeks, and an interesting spread sees limited upside.

The UNG is up 3.9 percent to $16.80, continuing to rebound since hitting an all-time low of $14.25 on April 19. The bounce brings the exchange-traded fund only back to where it was at the end of March, and it traded above $50 last June.

optionMONSTER's systems detected a trade involving more than 6,000 each of the in-the-money May 19 and 18 puts. The big blocks of 4,688 saw the May 19 puts bought for the ask of $2.44 and the May 18 puts sold for the bid of $1.58. The volume at each strike was more than open interest, so this is a new position.

The put spread cost the trader $0.86, which is the amount that would be lost if the UNG trades above $19 at expiration. The maximum gain of $0.14 will be made if the fund remains below $18.

Most traders pursue this type of strategy by selling call spreads that are in the money, as opposed to buying in-the-money put spreads, but they essentially serve the same purpose. (See our Education section)