Why would you promote trading in a futures-tracking ETF in a futures forum, especially UNG? They're only useful as hedges for an equity only portfolio if you'd rather not trade sector ETFs. 100 shares x $49 = $4900 that's almost the amount needed to trade a full size contract; you can trade a single mini with $1600. If you want to leverage yourself with a futures-tracking ETF you have to pay broker's margin rates which is always at least the risk-free rate PLUS a cut for themselves, PLUS you are limited to a max of 2x overnight 4x day leverage, whereas when trading the future itself the margin is built into the future price at the risk-free rate of return with no cut for the broker, AND you can trade up to 10x overnight 20x day leverage. What do you mean the "volatile NG futures contract"? UNG's purpose in life is to replicate the front month natural gas future, so it's at least AS volatile if they are following their mission statement: "The investment seeks to replicate the performance, net of expenses, of natural gas. The trust will invest in futures contracts on natural gas traded on the NYMEX that is the near month contract to expire. It is nondiversified." Last but not least, the ETF also has an overhead (manager pay) which must be satisfied, and all your gains are taxed at short-term capital gains rate instead of 40% short term 60% long term split that section 1256 commodities receive. Lastly, if the ETF has a disconnect with the futures market, you're SOL. It's like trading FX by using your local travelex currency store...
This info will help mostly newby equity traders who wants to trade Natty & considering UNG- All the points raised by Eugene are exactly true. 1.USO/UNG really dont replicate CL/NG performance. 2.Fund Management costs, contango,Monthly futures premium erosion etc makes them underformers when compared to the real underlying Futures contract. 3.You will be locking up more funds & will pay more taxes on gains (if any) 4.UNG is as volatile as NG futuress contract.( I said not volatile) 5.UNG Only advantage being not so leveraged. In futures because of the leverage ,one has to play with a tight stop. where as in UNG you can scale in & cost average (even though in % terms it blocks more money) 6.Natty recent daily range of 0.15-0.30-0.45c gives me heart ache . with a small position in UNG can sleep easy at night. I start with 100 shares & at extreme price low after the gas report was even long 2000 shares & sold slowly on the way up! Scaling in is going to kill me one of these days!!!!! Looking forward to soon to be introduced ETF on RBOB too.
This info will help mostly newby equity traders who wants to trade Natty & considering UNG- All the points raised by Eugene98 are exactly true. 1.USO/UNG really dont replicate CL/NG performance. 2.Fund Management costs, contango,Monthly futures premium erosion etc makes them underformers when compared to the real underlying Futures contract. 3.You will be locking up more funds & will pay more taxes on gains (if any) 4.UNG is as volatile as NG futures contract.( I said not volatile) 5.UNG Only advantage being not so leveraged. In futures because of the leverage ,one has to play with a tight stop. where as in UNG you can scale in & cost average (even though in % terms it blocks more money) 6.Natty recent daily range of 0.15-0.30-0.45c gives me heart ache . with a small position in UNG can sleep easy at night. I start with 100 shares & at extreme price low after the gas report was even long 2000 shares & sold slowly on the way up! Scaling in is going to kill me one of these days!!!!! Looking forward to soon to be introduced ETF on RBOB too.
I like UNG options -- not the underlying so much... Where else can you buy ATM and not spend $10-$15k minimum. much better for position scaling, and the 'leverage' argument goes out the window.
Arnold leaned on it hard on the open, buy fund however has been agressive for a Sunday night on the bid, not sweeping it up but holding it hard on ICE. I watched it for awhile, kept lifting offer, new offer in and lift again. Still think you buy on dips below 6.50 Obviously natty isn't for the faint of heart but stick to the general strategy. 1900 contracts on Aug ICE so far. not too shabby as of recent.
i'll buy the UNG options argument.. at least for near months. that's one fat ass gap down, glad i was flat for the weekend.
i keep telling myself... 'maybe this is the last desperate call to get the herd short enough to cover and close the giant position for gains'. wishful thinking... maybe it'll become a good trade. at least we're above closing levels on v-bottom day. i won't forget giving up out of soybeans long at around 7.40 earlier this spring, only to miss out on the move to 9 that occured weeks later.
Natty continues to act horrible. 6.376 close today. Trading under last Thursday's low at 6.301 will offer more confirmation that we have entered Wave 5 to the downside. As it was, today's Auggie low was 6.314 No need to bottom-fish.
We're the market maker in the pit! I am on the bid, and you are on the offer. I see your TA, but I see some things on a position dynamic that are not looking at your TA. And I think they will ultimately win and win big. Large specs hold their largest short position since jan of 2005, and 3rd largest on record. Tropics are about to come to life according to my private forecaster, and the last 10 days of july and first 10 days of aug will see a widespread regime of much above normal heat come into play. The market simply has written off this year too prematurely. I do think we will trade much lower than current prices, but not until we have a major cycle up first. Get Shorty!!