As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.

Position Update - (UNG)

Long position United States Natural Gas Fund (UNG) July, 2014 $23 puts at $1.68 or best

Strategy Update

1-31-2014

expiration date: July 18, 2014

Portfolio weighting: 5%

Number of contracts:? 30

(UNG) $23 puts cost basis at?????$1.68

 

Those who followed my advice to buy the United States Natural Gas Fund (UNG) July, 2014 $23 puts at $1.68 yesterday are now in the enviable position of owning a security that is running away to the upside.

At this morning?s high the puts traded at $2.40, a one day gain of an eye popping 43%. I am getting emails from a lucky few that they got in as low as $1.55 after receiving my Trade Alert.

The question is now what to do about it.

I just called friends around the country, and it appears that a warming trend is in place that could last all the away into mid February. It is starting in Florida and Texas and gradually working its away north, although they are still expecting eight inches of snow in Chicago this weekend.

Mad Day Trader Jim Parker is confirming as much with his proprietary trading model, the chart from which I have included below. He says that we put in an excellent medium term high in the UNG on Thursday at $27. This morning we tested daily support at $23.26 and it held the first time.

But with warmer weather, this is almost certain to break on a future downside push. Then we train out sites on the 18-day moving average at $22.25. After that, $22.07 is in the cards, the top of the gap that we broke through only as recently as January 27, only four days ago.

There our United States Natural Gas Fund (UNG) July, 2014 $23 puts, with a present delta of 40% (forget this if you don?t speak Greek), should be worth $2.83. You might get more, if implied volatilities for the puts rise on the downside, which they almost always do.

That would be a one-day profit of 68%, adding $3,000 to the value of our notional $100,000 model trading portfolio, or 3% to our performance this year, which I would be inclined to take.

Now it is time to get clever. It would be wise to enter a limit day order to sell your $23 puts right now at the $2.68 price. Since the first visit to these lower numbers usually happens on a big downside spike, the result of stop loss dumping of panic longs accumulated by clueless short term traders this week, you might get lucky and get filled on the first run. If you don?t keep reentering the limit order every day until it does get done, or until we change our strategy.

This has been one of my best trades in years, and it appears that a lot of followers managed to successfully grab the tiger by the tail.

If there was ever a time to upgrade to Jim Parker?s Mad Day Trader service, it is now. He will see the breakdowns and the reversals with his models faster than I, and get his Trade Alerts out quicker. Why wait for the middleman, who is me? These fast, technically driven markets are where Jim really earns his pay.

If you want to get a pro rata upgrade from your existing newsletter or Global Trading Dispatch subscription to Mad Hedge Fund Trader PRO, which includes Mad Day Trader, just email Nancy in customer support at nmilne@madhedgefundtrader.com, or call her now at 888-716-1115.

Do it quick because she is about to get overwhelmed.

Now We?re Cooking With Gas

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.

Further Update to: Trade Alert -(UNG)

Buy the United States Natural Gas Fund (UNG) July, 2014 $23 puts at $1.68 or best

Opening Trade

1-30-2014

expiration date: July 18, 2014

Portfolio weighting: 5%, or $5,000

Number of contracts=? 30 contracts

I received a crackly, hard to understand call late last night from one of my old natural gas buddies in the Barnet shale in Texas. Chances are that CH4 peaked in price last night with the expiration of the front month contract. It was time to sell.

I spent five years driving a beat up pick up truck on the tortuous, jarring, washboard roads of this forlorn part of the country, buying up mineral rights from old depleted fields for pennies on the dollar.

The sellers thought I was some moron hippie from California, probably high on some illegal drugs. ?You want to redrill these fields and throw dynamite down the holes?? It was a crazy idea. Since I was offering hard cash, they couldn?t sign the dotted line fast enough.

During the late nineties nobody had ever heard of fracking. Even in the oil industry only a few specialists were aware of it. My old buddy, Boone Pickens, claims he was doing it in the fifties, but then nothing the wily oilman ever does surprises me.

Only a few reckless independent wildcatters were experimenting with the new process. The oil majors wouldn?t touch it with a ten-foot pole. It was unproven, dangerous, and could never deliver sufficient volumes to get them interested. With the deep pockets a trial lawyer could only dream about, they couldn?t afford the liability risk of polluting a town?s drinking water. So it was left to small fry like me to finance this ground-breaking technology.

I ended up developing a couple of fields, riding gas up from $2 to $5 MMBTU, then selling them off to the gas companies. My partners and I made a fortune.

We have remained in touch over the years. Whenever something indecipherable happens in the international capital markets, they call me for an explanation. When something special sets up in the natural gas market, I get the first call.

On Election Day we all go out and get drunk because their conservative vote cancels out my liberal ones, so why bother? We do this at Billy Bob?s in Fort Worth, a favorite of former President George W. Bush, where the 24-ounce chicken fried steaks fall over both sides of your plate.

I didn?t reenter the gas market until the Amaranth hedge fund blow up took the price up to $17 in 2006, and then down like a stone. I figured out that the United States Natural Gas Fund (ETF) suffered from a peculiar mathematics that was death for long side investors.

The natural gas futures market often trades in a contango. This is when front month contracts trade at a big premium to far month ones, adjusted for the cost of borrowed money. This premium completely disappears at expiration, when the commercial buyers, like electric power plants and chemical companies, take physical delivery of the gas.

What (UNG) does is buy contracts three months out, run them into expiration, and then roll the money into new contracts another three months out. The premium they pay rapidly falls to zero. Then they repeat the process all over again. It is a perfect wealth destruction machine.

I have seen a period when natural gas rose 40%, but the (UNG) dove 40%, thanks to the costly effects of the contango. Needless to say, this makes the (UNG) the world?s greatest short vehicle in a falling market. It is a fantastic heads I will, tails you lose security.

There is another crucial factor making natural gas such a great natural short that few outside the industry are aware of. You cannot store natural gas to the degree you can semi liquid oil. Unlike Texas tea, natural gas wells can?t be capped without damaging their long-term production. It has to flow and be sold at whatever price you can get. If you don?t, it goes away. This means that when the price of natural gas falls, it does so with a turbocharger, also making it an ideal short play.

To make a long story short, I made another fortune riding gas down from $17 to $2. I haven?t touched it for 2 years. Other hedge fund manager friends of mine made billions on this trade, and then retired to a sedentary life of philanthropy.

At this point, natural gas is up an unbelievable 56% in three months, thanks to Mother Nature?s brutal assault on most of the country, except here in balmy California. Demand is at an all time high, prices a 5-year peak, and speculative long positions in the futures market at an eight-year apex. Storage was taken down to a six month low of 1.2 trillion cubic feet with today?s 230 billion cubic foot draw down.

Expiration of the front month contract triggered a super spike in the (United States Natural Gas Fund to an astounding $27, while underling natural gas made it all the way up to $5.50, nearly triple the subterranean $1.90 low set in April, 2012.

This is happening in the face of one of the greatest supply onslaughts in history that will hit the market throughout the rest of this year. They?re still hiring and drilling like crazy in North Dakota.

The demand spike came hard and so fast that it caught many suppliers by surprise. That has created a bubble in the pipeline, a temporary shortfall in supplies, and triggered an incredible short squeeze in the natural gas market.

Winter can?t last forever. Eventually summer comes, and the shortage of natural gas pipeline will get more than made up by thousands of new fracking wells in the US.

If the UNG returns to the November, 2013 $17 low by July 18, the value of the (UNG) July, 2014 $23 put rises from our $1.68 cost to $4.72, a potential gain of 181%. That?s a fabulous risk/reward ratio, and we have six months to see it happen.

Keep in mind that liquidity could be an issue here. Yesterday, 1,549 contracts traded against on open interest of 2,297 contracts. The option market spreads here are also humongously wide and the volatility is of biblical proportions, which is endemic to the natural gas market.

Just to get a second opinion, I called Mad Day Trader Jim Parker, as I hadn?t been in this market for a while. He said it was warming up in Chicago, and he was venturing outside for a walk for the first time in three days. Out went the Trade Alert!

Below please find a chart for natural gas generated by Jim?s proprietary trading model. The bottom line here is that there is a high probability that we will drop from the current $5.17 down to $4.70, break that, go down to $4.17, break that, and possibly go as low at the November low of $3.40.

They don?t call this market the ?widow maker? for nothing, so expect a lot of heart wrenching volatility before you see a substantial payoff. So it best to enter a spread of small limit orders and hope for the best.

Here is the specific trade you need to execute this position for a $5,000 holding:

Buy 30 X July, 2014 (UNG) $23 puts at?????$1.68

Time to Sell Winter Short

Billy Bob?s in Forth Worth