UNG Saga

T

TraderD

"In the latest chapter of the United States Natural Gas ETF(UNG Quote) saga, the fund has begun to trade at a noticeable premium to its actual value, forcing investors to "pay up" to get a hold of shares.

...UNG closed at a 2.56% premium to net asset value (NAV).

The eventual approval of more units is very likely, and this move will drop the price of UNG until it is back in line with NAV. "

http://www.thestreet.com/story/10542941/1/regulatory-delay-drives-up-price-of-etf.html


But can't it do opposite? How about this:
1) UNG is allowed to create extra shares
2) UNG buys futures and drives up the price by its activity
3) premium narrows
 
Anyone that continues to trade this product ( as well as the USO ) really needs their head examined - - - especially after all of the recent press on this "vehicle".
 
Can you elaborate?

Contango?
Day trader does not care, and long term investor can handle this, since contango may reverse and his risk/reward perspective is different.

Premium over underlying?
2% for UNG is no big deal

Those are 2 major news items.

Not sure if they put 100% into futures, or use margin and put excess liquidity into bonds (risk).
 
Quote from TraderD:

Can you elaborate?

Contango?
Day trader does not care, and long term investor can handle this, since contango may reverse and his risk/reward perspective is different.
More...

I strongly disagree.

The "long-term" investor gets absolutely screwed on contango in this fund . . . and contango is usually what predominates this market the majority of the time given the seasonality.
 
Quote from TraderD:

Can you elaborate?

Contango?
Day trader does not care, and long term investor can handle this, since contango may reverse and his risk/reward perspective is different.
More...

As far as I understand the current contango dilemna with UNG, the near month NG contract is about $3.40 with spot at about $3.30 with January of 2010's contract increasing to something like $5.50.
As UNG owns the near month NG contracts, rolling them over each month, the spot price of natural gas would have to rise over 50% to $5.50 by January just for you to break even.
If you like natural gas, may be better to buy nat gas stocks like APC, APA, EOG or whatever you like.
Good luck with whatever you do:)
 
Thoughful responses.

I wonder if someone can point to some studies on losses/gain from near month contract roll over (for NG or anything else)?? For a period of 30 years.

I have (unproven) hunch that over a period of time contango/backwardation negate each other, and even very crude roll over methodology can adequately track spot price.
 
Quote from TraderD:

Thoughful responses.

I have (unproven) hunch that over a period of time contango/backwardation negate each other, and even very crude roll over methodology can adequately track spot price.
More...

Totally wrong.
Especially given the seasonality in NG.
I suggest that you do your own homework, instead of asking people here to do it for you.
 
If the info may be in public domain, what is wrong with asking about it? Is not this what forums are for?

On the other hand if this is considered cutting edge research or paid research then it is a different story.
 
Quote from TraderD:

If the info may be in public domain, what is wrong with asking about it? Is not this what forums are for?

On the other hand if this is considered cutting edge research or paid research then it is a different story.
More...

Please feel free to show me an energy market this year that is in "backwardation".
 
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