Winter is coming—so I’m buying nat gas: Technical analyst

As winter approaches, one trader thinks natural gas is headed toward a "potential technical breakout."

Shares of UNG, the ETF that tracks natural gas for short periods of time, is trading near $8.60 range during Friday's session, and has not broken above $9 since January. But Todd Gordon of TradingAnalysis.com thinks that's about to change.

"UNG is bumping up against the $9 region, threatening a breakout ... we should be able to move higher into this winter season," Gordon said Friday on CNBC's "Trading Nation."

To capitalize on the potential breakout, he set up an options spread. Specifically, Gordon bought the November 8-strike call and sold the November 10-strike call for $0.83 per share, or $83 per options spread. If UNG closes at or above $10 at November expiration on Nov. 18, his spread would be worth $2, for a profit of $1.17 per share.

Meanwhile, if UNG falls back below $8, he plans to "cut the trade and control losses."

Investors should note that while UNG has a high correlation to the daily moves of natural gas futures, the costs of "rolling" from one futures contract to the next exact a serious toll on long-term holders of the ETF. For instance, while continually rolled natural gas futures (the most commonly viewed chart) are up 14 percent over the past year, the UNG is down 29 percent.


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