This is the VelocityShares 3x Long Natural Gas ETN. Right now it is trading at $1.88. A year ago it was trading at $46+. I would like to know if I buy shares, could I lose the full amount invested? I wonder because being 3x maybe there are inverse splits or something I am not aware of. I would say there must be something, because otherwise one could just load up and simply wait for it to go back to $46 and get rich. But I don't know. Could anyone illustrate me?
Could UGAZ go to zero?
- Thread starter Morning Attack
- Start date
It won't go to 0 unless nat gas will go to 0 (very unlikely). Having said that, it's not slam dunk trade either, nat gas could stay low for quite some time and if nat gas stays where it is today there's still a drag on UGAZ (here's a basic explanation as to why http://www.etf.com/etf-education-ce...il-a-guide-to-contango-and-backwardation.html)
Thank you, sysdevel99. I see that UGAZ has lost much more than 3 times Nat Gas during the last year. From $46 to $2, while Nat Gas has gone from $4 to $2. I guess then this is because of contango... So if in a year Nat Gas goes back to $4, UGAZ would not necessary go back to $46, right? It could go, though, or is there value lost forever?
It won't go to 0, they will just do a reverse split on the shares and it will continue on like normal. You might lose 99.9999% of your investment though if it continued down and they continue doing the reverse splits.
It is because of contango and because it is more leveraged in theory.
You are correct, just because nat gas futures go back up to 4 doesn't mean UGAZ goes to 46.
Don't overthink this, if you're bullish go for it.
I am not bullish right now, I think that commodities will bottom in the first months of 2016. And except for gold ( GLD, holds physical gold, not futures) it looks like the other commodity ETFs have the contango/backwardation problem. Maybe it is better to buy shares of companies related to the commodities. In case I missed them, do you know of other ETFs that hold the physical commodity?
Of course, we are at a bottom for natural gas (NG), but remember, historic low was at 1 dollar ! (24 years ago).
This could be a good idea if you are patient and want to diversify your portfolio (5% of your assets for example).
But if you have no perfect timing, you better buy it regularly on a monthly basis. Slice your investments, average down (or up), and wait... It could take time to rebound.
Some physical ETFs : PHAU US, PPLT US, PALL US, SIVR US ...
CM
Not quite. You have to adjust for the value of the dollar. In present value terms nat gas was much less then $1. And no, UGAZ is not going to recapture it's value. All these commodity ETF's lock in real losses on the contango that can equal 100% of the ETF value. When one buys this ETF they are essentially long a strip and short the forward curve, not long nat gas.
I'm bearish on this, but it definitely won't go to zero.
It is not just the contango that makes the prices crazy. Leveraged 2X and 3X ETF prices are recalibrated daily, so there is a little value lost each day that isn't lost in the underlying (maybe the owners are skimming a little cream off each day for themselves).
And yes, reverse splits too: when UGAZ and DGAZ get too far out of whack from each other, the owners recalibrate the prices again. Say they both started at $25/share. Then after 6 months, one is at $100 and the other is at $7. They may just set them both at $25 again and you start drooling because you see that one of them went to $100. If they do multiple reverse splits it may show $1000, and you fall off your chair. It does not mean it could go back to that high price!
I have been watching UGAZ. It is necessary to see a bottom put in first before buying. It might go a lot lower. A LOT lower. Buying now is called "catching a falling knife." You might get lucky, but probably not.
Now maybe you want to ask how to know if a price bottom is in? No way to know for sure, but there are ways to know a bottom is probably in: moving averages turn up, price gets above moving averages, trend lines are broken to upside, higher highs and higher lows are being made: all in the time period you want to trade; long-term trade would be with daily, weekly and monthly charts.
And yes, reverse splits too: when UGAZ and DGAZ get too far out of whack from each other, the owners recalibrate the prices again. Say they both started at $25/share. Then after 6 months, one is at $100 and the other is at $7. They may just set them both at $25 again and you start drooling because you see that one of them went to $100. If they do multiple reverse splits it may show $1000, and you fall off your chair. It does not mean it could go back to that high price!
I have been watching UGAZ. It is necessary to see a bottom put in first before buying. It might go a lot lower. A LOT lower. Buying now is called "catching a falling knife." You might get lucky, but probably not.
Now maybe you want to ask how to know if a price bottom is in? No way to know for sure, but there are ways to know a bottom is probably in: moving averages turn up, price gets above moving averages, trend lines are broken to upside, higher highs and higher lows are being made: all in the time period you want to trade; long-term trade would be with daily, weekly and monthly charts.