What does a 3% October premium to July mean? Why is a wide contango bad? Dennis Gartman says: "there has been a great deal of interest in nat-gas on the part of speculators in the past several days and the chart of nearby nat-gas has turned far more positive than it has at any time in the past many months. However, we are asked often about the efficacy of owning the nat-gas ETF as a substitute for owning nat-gas futures, and our response is that weâd prefer not owning either for we the contango is so wide that one is almost doomed to losses⦠egregious losses⦠over almost any protracted period of ownership. With October nat-gas trading 3% premium to nearby July, this is a huge premium to overcome, and weâd prefer not trying to overcome it. Instead, weâll again say that âbettingâ on nat-gas is better done by owning the various nat-gas trusts, for at least there one is paid a monthly stream of income, and that stream is now better covered with nat-gas trading above $5/Mbtu.
https://secure.globeadvisor.com/gi/...+Global+Allocation+S1&pi_universe=PUBLIC_FUND We report, you decide...
Interesting link on Gartman. Thanks Rodney King. Question: Why is a wide contango a bad thing and "difficult to overcome"
1) The price of the October futures is ~3% above the July futures price. 2) A "wide" contango isn't necessarily bad. To be "long & wrong" in a declining market is bad. You WILL lose money primarily due to price fluctuation. Even in a rising market, the contango will tend to remain. The average amount of daily "decay" with the contango is very small with respect to the market's average daily range. 3) The contango becomes something to "overcome" in a sideways market where the deferred futures will tend to decline to the spot-month contract. 4) Those trusts are susceptible to fraud. They are not a source of "free money".
+100. to OP - this post basically summarize that gartman does not know how to invest in gas. the fact that he is clueless on how to do it does not mean that you can't do it. i am in gas up to the hilt for the past year and that investment is only making me money. trusts are good when you do not know how to do it yourself - and even then the selection of which trust in particular is pretty tough. natty futures is a no-no for long term investment imo. the best way to play it is with stocks which have a "correct" cash flow profile in future coinciding with your investment horizon.
In fairness to Gartman, he needs to point his readers, who are mainly institutional-size traders, toward easy-to-understand, easy-to-trade, highly liquid instruments with which to implement his recs. Which is not to say his recs add value -- you can research his trackrecord and make your own call on that.
Only for shorter-term trading/investing. The tracking error can greatly diminish your returns. You could attempt to use the futures to guide your trade decisions.