Market Commentary – Alternatives to Oil – Natural Gas and Solar – 02/22/17
I sold some puts this morning on UNG, an ETF that tracks the value of Natural Gas over time. However, this tracking is not perfect and decays over time, mostly because of the effects of contango in the Natural Gas futures market. So it is generally not a good idea to own UNG outright, but to take advantage of options premiums by selling puts and calls. Also, playing futures contracts directly is a good way to avoid this decay.
The trade works as follows:
Sell Mar 31 UNG $6.50 puts for $0.3 each – Net cash outlay is $650 per contract – Collect $30 premium per contract
If UNG holds $6.50 by March 31st expiration, then I collect the $30 per contract premium, minus fees and expenses of course. If UNG is below $6.50 by March 31st expiration, then I will be forced to sell UNG at net $6.20 ($6.50 strike - $0.30 premium). I will proceed to sell calls until the shares are called away from me, whether at a profit or loss. If UNG declines significantly below $6.50, then a loss will most likely occur. I also set an order to sell more contracts at a higher price on longer-dated UNG options contracts with the same strike. We will see if they get filled.
Solar is a mostly-forgotten-about source of energy that has done nothing but get cheaper over the past several years. According to Elon Musk, the Tesla Solar Roof will cost less than a regular roof.
Per the SEIA, in 2016:
In its biggest year to date, the United States solar market nearly doubled its annual record, topping out at 14,626 megawatts (MW) of solar photovoltaic (PV) installed in 2016. This represents a 95 percent increase over 2015’s then record-breaking 7,493 MW.
TAN is a ETF that tracks the price of an equity index called the MAC Global Solar Energy Index, which contains mostly companies dealing in the solar industry. With an average Price/Earnings of 11.97, an average Price/Book of 0.78, and an annual dividend yield of 4.46%, this investment is starting to look awfully attractive in my opinion. I already own some TAN and may buy more depending on what happens in the digital currency markets. Ideally, the digital currency uptrend will roll over about the same time as an uptrend in TAN begins, at which point I will just switch teams. Of course, this is the ideal situation and most likely won’t happen. Beggars can’t be choosers.
Disclaimer: This is not advice of any kind.
thank you