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Permalink Reply by Checkmateking on August 20, 2009 at 4:50

I hope I don't own any shares.

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Permalink Reply by The_Baron on August 20, 2009 at 5:00

well, the price will triple. The question is "When?".

I think you would have a better chance at the roulette tables right now.

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Permalink Reply by ALongview on August 20, 2009 at 10:06

It is not quite as simple as the headline makes it sound.

According to the Financial Times, an unnamed hedge fund has spent millions to gobble up extremely bullish natural gas options with expirations later this winter. Specifically, the fund bought contracts with $10 strike prices that expire in January and February.

That means the fund is showing its confidence that natural gas prices will more than triple in the coming months. If it happens, or comes anywhere close to happening, the mysterious hedge fund stands to rake in tens of millions of dollars.

If it doesn’t happen, of course, and the situation gets even worse, the mysterious fund could lose everything.

So why would anybody make such a move?

Several reasons. First, even if natural gas prices do not hit the $10 strike price, the options could surge above last week’s trading price of $0.056 with even a slight short-term spike in prices or bullish speculation.

A four-percent turnaround in gas prices in the near future could lead to a triple-digit gain for the fund. That’s the beauty of options.

Beside an all-out speculative play, the firm could be hedging its book with the move. After already making a slew of cash playing the downside, this could be its plan to help ensure it keeps those gains even if prices make a quick turnaround.

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Permalink Reply by Scott on August 20, 2009 at 10:33

Nicely said.

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