Update: Cover The United States Gas ETF Trade

Jul.29.14 | About: The United (UGA)

Summary

The average price of gas in the U.S. has fallen over the past month.

My call to short the UGA via Puts has materialized.

It’s time to cover the trade to lock in profits.

Just over a month ago, I wrote an article about the likely direction of gas prices. Although the U.S. average gasoline price didn't increase much before its monthly decline, the trade did play out for a profit. This took less time than I originally thought. I originally thought that it would take a few months for gasoline prices to reach the current U.S. average of about $3.51 per gallon. Gasoline prices began to decline just a few days after the article was written. I thought that the average price would break $3.70 before declining, but the price peaked just under $3.69. Nevertheless, my suggested trade to buy the October 2014 $60 puts on the United States Gasoline ETF (NYUGA) has turned a profit.

At the time of the article, the price of the October 2014 $60 put option was $0.78. The Put now has a value of $2.05 and is in the money since the price of UGA fell below $60. Now is a good time to close the position to lock in the profits. The total gain amounted to approximately 163% not including commissions. Not a bad return for a one-month trade.

It turns out that the news in Iraq did die down quickly. Therefore, the fear premium in the price of gasoline due to possible supply disruptions was deflated over the past month. The current price of gasoline now reflects approximately where the U.S. Energy Information Administration was predicting the price to be in September. The price arrived rapidly, but so did the profits on the trade.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.