The volatility in natural gas prices is a fertile ground for traders as profit opportunities abound. While natural gas is believed by many to be the energy source of the future in the US, short term supply and demand fundamentals remain highly cyclical. Remember that until export facilities come into play, this commodity remains landlocked in North America and is currently suffering from a glut as a result of the shale revolution. The 3 primary drivers affecting short term supply and demand are:
The Weather: demand peaks during the coldest months of winter and the hottest months of summer and vice versa.
Fuel Switching: industrial and power generation consumers may switch fuels during periods of depressed natural gas prices and vice versa.
The Economy: a downturn/upswing in the economy has a direct impact on natural gas consumption for industrial use.
Natural Gas ETF 3x
For traders looking to profit from natural gas price swings, the following triple long or triple short ETFs are available:
VelocityShares 3x Long Natural Gas ETN (NYSE:UGAZ)
UGAZ $11.62 [-0.04]
Average Volume: 10440400
UGAZ is a new comer released in February of 2012. The fund provides investors with 300% leverage (3x the performance) to NYMEX natural gas futures.
VelocityShares 3x Inverse Natural Gas ETN (NYSE:DGAZ)
DGAZ $24.26 [+0.11]
Average Volume: 3476970
DGAZ is UGAZ’s sister fund which provides investors with a -300% leverage (inverse exposure to 3x the performance) to NYMEX traded natural gas futures contracts. The fund was also launched in February of 2012.
Live ONE YEAR Chart of the 3x Inverse Natural Gas ETN– Symbol DGAZ
UGAZ and DGAZ are both linked to the S&P GSCI® Natural Gas Index ER (Bloomberg Index Ticker – SPGSNGP). As you can see from the chart above, massive gains and losses are realized in a very short time frame. It is very important to emphasize the fact that leveraged ETFs/ETNs are intended to be daily trading tools and are not designed for buy and hold investors. These products reflect a leveraged exposure to their underlying index on a daily basis. Obviously, traders love the leveraged to a commodity with many price volatility triggers. But it is equally important to remember that the wrong call may result in painful losses.Over a long period of time, the fund’s performance will likely differ from the index due to contango in the NG futures market, expenses and other factors. If you are looking for a non-leveraged exposure to the commodity, be sure to check the following natural gas etf list.
Natural Gas Stocks ETF 3x
For those traders seeking to play the E&P companies rather than futures contracts, there are 2 natural gas stock ETFs to choose from:
Direxion Daily Natural Gas Related Bull 3x Shares ETF (NYSE:GASL)
GASL $21.40 [+0.31]
Average Volume: 181136
GASL is designed to return 3x (300% leverage) of the daily performance, before fees and expenses, of the ISE Revere Natural Gas Index. The fund began trading in July of 2010.
Direxion Daily Natural Gas Related Bear 3x Shares ETF (NYSE:GASX)
GASX $31.80 [-0.52]
Average Volume: 13647
GASX is designed to return 3x (-300% leverage) of the inverse (opposite) of the daily performance, before fees and expenses, of the ISE Revere Natural Gas Index. The fund began trading in July of 2010.
Live 5 DAY Chart of the Direxion Daily Natural Gas Related Bear 3x Shares ETF– Symbol GAZX
The ISE-REVERE Natural Gas Index holds stocks of companies that derive a substantial portion of their revenues from the exploration and production of natural gas. The companies are selected from candidates following a screening process for performance variables and other factors such as P/E (price to earnings) and ROE (return on equity). The GASX and GASL ETFs are a play on stocks rather than futures contracts. Whichever you decide to pick for trading, try to avoid holding your position beyond a single trading session. As you can see from the GASX 5 day trading chart, there is no lack of profit opportunities.
Disclaimer: the information presented above is only for informative purposes. It is in no way an encouragement to buy or sell the aforementioned securities.