Monday, July 13, 2009

Natural Gas: UNG Cannot Issue New Shares, Price to Deviate From The Commodity

A fellow by the name Patrick Watson had an article on SeekingAlpha where he says the price of UNG is likely to deviate from the natural gas market "until such time as UNG is able to issue new shares. Today, it is trading at nearly a 2% premium to its indicative value. In effect, UNG is now operating almost like a closed-end fund with a fixed number of shares".

You can clearly see the difference in prices between UNG and Natural gas futures, and the very high volatility of UNG lately, in the 5-day charts below:


Nat Gas Futures ($NGAS NYME):

(click to enlarge please; note that Nat gas futures are already trading today)
This, and the fact that it reached our profit targets, is precisely the reason that we posted last week that we exited all shorts on natural gas, although natural gas remains a bear market until hurricanes starts. Then, it will be a good speculative option for short term trades.
UNG however, due to these issues and to its sheers size, joins the group of ETFs to stay away from as its price will not reflect fundamentals.

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