How does tvix, ugaz and dgaz work

Discussion in 'ETFs' started by Reymond, Dec 19, 2015.

  1. Reymond


    Can someone tell me in simple form how tvix, ugaz and dgaz go up or down.

    Let start off with DGAZ to me when the weather is good in NYC it goes up. The more sun and temperature it goes up higher. It probably has nothing to do with NYC weather, but that how I played it and have done great. Please let me know if weather and more sun has anything to do with this. Also if its about weather does it look at only USA or World weather.

    UGAZ I just started to put my money here now after seeing the weather going down here in NYC. Once again I played it correctly as it went up by 10 cents, while DGAZ was going down. Is this played the same way as DGAZ.

    TVIX - When the stock market is doing horrible this seems to be going up. If the dow jones and nasdaq goes down does this affect TVIX to go up or is it only S&P 500. Maybe it's a different factor. I don't touch TVIX as I am not sure when it goes up or down and what effects it do go up or down.

    So in simple form what controls when these three stock go up or down.
  2. Patrick Rooney

    Patrick Rooney Sponsor

    These are each managed through futures contracts and as the futures contracts rise, or fall the case of UGAZ, the ETF will rise. Investment of the funds could be pure futures or a combination for futures and options.

    Where you get bit here is the transaction cost of rolling the contacts. If the underlying markets are in contango, which is the case for VX and NG futures, you're 'paying up' at each roll. For example of you're rolling the front month VX futures to the second month, which the manager must do, you may be selling at 19 and buying at 20 so you're taking a haircut of about 5% which each roll. That's a natural weight on the return of the fund.
    Last edited: Dec 19, 2015
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  3. Reymond


    I am a complete beginner and don't understand some of the terms you said. So I used a search engine for help. When I say "beginner", I mean I one day said to myself I can do this stock thing and just deposit without knowing anything.

    The first day I learned my lesson when my account was locked for trading too much and they told me I was a pattern day trader. I thought I could just put my money in and then get out within a hour or two. So this is the type of beginner you're talking to.

    Anyways I had to research futures contracts and what they do. I didn't know what NG meant now I know its natural gas. VX I assume means Volatility.

    Maybe there is a video 5 - 7 minutes long to example some of these. As someone who is a complaint novice and don't really want to learn everything as of right now I think I am doing decent with the 4 months.

    I am trying to figure out TVIX, DGAZ, and UGAZ as I think I have a sense on how they work but never researched into them in depth due to my laziness. I am still confuse on what moves these up and down aside from what I said in my first post that DGAZ and UGAZ has to do with weather and TVIX is due to the market doing bad it will go up or am I wrong and with those 4 months I been playing this like a mad man and lucky on my winnings.
  4. lindq


    In very simple terms, these are all leveraged exchange traded funds. This means that each of these instruments, which trade like stocks, will move more than the indexes on which they are based.

    For example, TVIX is derivative of the VIX, which generally measures the overall volatility of the market. When the market goes up, the VIX tends to move down. When the market goes down, the VIX tends to move up. But TVIX, because it is 2-times the leverage, will move twice the level of the VIX. Trading leveraged funds based on the VIX (there are many of them) has become very popular, because of the intraday volatility provided by the instruments. (Pull up a chart of the VIX (which is a measure, not a stock), and a chart of the S&P 500, and put them side by side. You will see how how they generally move inverse to each other.)

    DGAZ and UGAZ are leveraged to natural gas prices. They are 3-times leveraged, which means they move with great volatility. They are related to weather only in that some traders assume the price of natural gas may rise or fall depending on weather forecasts. But playing these instruments in regard to the weather is a game for serious pros who are plugged into historical models.

    I would caution you VERY STRONGLY against getting heavily involved in any of these instruments until you are well-versed in what they are, and how they trade. And even at an expert level, you don't want to hold any of these overnight unless you have a well researched plan in place and fully understand your risks.
    Reymond likes this.
  5. Reymond


    Thank you so much for the help on these and exampling them to a person with very little knowledge. If i do fall it's already as i had made money off DGAZ when it was at $6.82 and stopped at $26.18, before switching over to UGAZ for $1.30 and $1.35. I guess I played it right, but the question is if it's consider based on weather forecasts at some degree is it only for USA, major cities in the USA or world wide.

    I understand the risk, but regular stock are making me lose money or has no gain but went equal what I brought it at. I am still waiting for KMI and FCX to go up so I can make a return as I brought too much of these 2 weeks ago.
  6. Gambit


    Hello Patrick. Does ADL work with futures options or spreads in the implied market? Also, will the old legacy ADL (that comes with Xtrader) work on futures options or spreads? Thanks.