Does anyone know exactly how much contango eats away at UNG? I heard its about 16 cents a month right now? Would this be priced into the options by the writers?
Yes, it's priced in. You need to read the UNG prospectus to specifically see how they do their rolls, when they do them and what combinations of contracts they use. I haven't read it otherwise I would tell you. The options will be priced off the forward curve so when nat gas is in contango the curve is upward sloping. You can transform that curve in excel to get the downward slope in price. Use that curve to price your forward price in gas. Or to simplify this, UNG's ATM price will actually be lower then the current traded price so the calls will be dirt cheap as it relates to today's price but accurate relative to the forward price.