Natural Gas Stocks Set to Catch Fire

A bizarre trade is developing in the natural gas stocks: One that you can detect if you read the unbelievably good article this morning by Don Dion about the U.S. Natural Gas (UNG - commentary - Trade Now) ETF, one that I know the technicians are all focused on, one that I know the ETF legions are all focused on and one the stock traders aren't focused on and I want to take advantage of it.

Dion points out that the tail of UNG is about to start wagging the actual natural gas futures, which as we know is incredibly easy to manipulate -- ever hear of Amaranth Advisors? It looks like breakout time despite there being no particular reason for a breakout other than the 18 to 1 ratio that now exists between oil and natural gas -- the largest ever -- and the plethora of recent articles bashing coal.

But there are plenty of natural gas plays that are ready to explode if this is the case. I am buying Devon (DVN - commentary - Trade Now) for Action Alerts PLUS because Devon has a ton of natural gas coming on stream from the Gulf and has a huge Barnett Shale play, among the biggest, with very low costs so it can make money here. Chesapeake (CPK - commentary - Trade Now) and Southwestern (SWN - commentary - Trade Now) are the other two I would buy as they too have the most exposure. The hoopla over Aubrey McClendon's pay package has died down and Southwestern was moving up nicely until oil tripped up at $72. All three could ramp here as this Dion trade takes place.

This is the kind of trade that could be so rapid that it might pay to have some June punt calls (ones that could go out worthless) as well as the first-in-the-money strike calls.

This is the kind of trade I used to love because the stocks are cheap and hammered anyway and natural gas is being recognized as a go-to fuel. Most important though, because of the screwed-up nature of the UNG, there should be plenty of money running ahead in the nat gas futures, which means a quick trade to the upside seems very likely.

Random musings: The gigantic amount of Apple (AAPL - commentary - Trade Now) puts being sold should drive the stock up to $140 near-term... I hate to be a broken record, but Dion's piece on Best Buy (BBY - commentary - Trade Now) is a classic example of what I have been talking about regarding individual stocks and ETF sector funds.

At the time of publication, Cramer was long Devon.

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