Monday, November 16, 2009

Profit From Natural Gas Going Up or Down

UNG has oscillated 44% since June. UNG is a horrible ETF. Who in his or her right mind would buy something guaranteed to drop 10-15% every month just by sitting there? This is what happens due to contango in natural gas and the way UNG has to roll its contract every month. Every month losing 10-15% on the rollover.

Contrary to what you mays ee on TV, natural gas production continues at full steam, as reported by the Wall Street Journal today:

"America's natural-gas producers did just great in the third quarter. That is bad news for gas bulls. Almost half the exploration and production (E&P) companies followed by Deutsche Bank analyst Shannon Nome raised forecasts for 2009 production. One of the biggest, Chesapeake Energy, hit a company record of 2.6 billion cubic feet equivalent (BCFE) a day in October. It expects to hit 3.1 BCFE in 2011, partly by selling assets to help fund its huge capital expenditure bill."

Investing in UNG is not investing in natural gas. Please see the charts below:

UNG Chart:

Front month natural gas chart:

Clearly, they have little to do with each other.

Here are UNG straddles for November adn December:

With expiration on Friday, this week's straddles are too risky, beyond any reasonable risk. Options are very dangerous. Please do your own due diligence.

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