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What's Behind the Downward Momentum in Ultra Petroleum?

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UPL should be expected to underperform peers in 2013, since its emphasis on natural gas operations ties its performance closely to the weak commodity.

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Houston, Texas-based Ultra Petroleum Corp. (NYSE:UPL) is an energy firm focused on the acquisition, exploration, and development of oil and natural gas properties with efforts focused on the Green River Basin in southwestern Wyoming.

This stock should be expected to underperform peers in 2013, since its emphasis on natural gas operations ties its performance closely to the weak commodity. 95% of UPL's reserves are derived from natural gas production, and the company has recently announced drilling curtailments. This has been a response to pressure on commodity prices from an oversupplied market and what is predicted to be continued strong North American production for years to come.

I would put on the following trade in $UPL.

Buying the $17/$16 Put spread for $35:

Risk: $35
Reward: $65
Breakeven: $16.65

In the chart below, you can see the negative state of UPL itself. It is on new all-time lows; it made a dead-cross in January (50SMA crosses the 200SMA to the downside); and the MACD is negative in comparison with the signal, etc.


Click to enlarge
No positions in stocks mentioned.
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