We have been watching the new high in Natural Gas futures (see our post New 12-month High in Natural Gas Futures) and waited for a 1-2-3 top to form, which it did over the next several trading days. See the Daily Natural Gas chart below.
When the 1-2-3 top formation completed, we put a Sell order to short March 2014 Natural Gas futures when prices broke below the #2 point of 4.18. The 50% Retracement level (according to the Daily chart below) is at 4.01 which it surpassed yesterday, 1/9/14, when it closed at 3.977. As of today, 1/10/14, prices have dipped even more to as low as 3.936 at the time of this post. We look at the Weekly Natural Gas chart to anticipate a new 50% Retracement level to see how much more downside profit potential this trade has. According to the Weekly Natural Gas chart below, the 50% Retracement level is 3.8395.
We bought a 405 Put option (~3 strike prices out of the money) when prices broke through the #2 point at 4.18 2 days ago (1/8/14) for $1250.00. Today our 405 Put option is worth $2350.00 (at the time of this post). Since prices went as low as 3.936 today before bouncing back up and there isn’t that much downside left in this trade, we decided to sell our 405 Put option and take the profit.
We profited $1100 on this trade shorting the Natural Gas futures market using a Put option in 2 days for a 188% profit.