My colleague Joe Easton, wrote a nice piece on natural gas this Friday! While I dont know enough details on your project, Joe and i initial instincts is to go out 6-12 months out go long the future contract and periodically sell short term covered calls against it and buy puts with the money. Again this is very general in nature and we will be happy to give more specific advise if you like, feel free to PM me. Hope this helps!
Yes, the deal is to set up a purchase agreement with the site host for as long as you can at a fixed cost per kWH/BTU, the longer the better for them and you to cover the initial cap costs.
UGAZ Decay Quantified: A Sure Path To Lose Money https://www.askfinny.com/bite/UGAZ-horrific-decay-quantified Today, the shares of VelocityShares 3X Long Natural Gas ETN (UGAZ) fell more than 12%, causing a lot of panic selling. The perennial debate among investors in 3X ETN securities is to whether to hold those securities or sell them and recognize the loss when such steep declines occur. The purpose of this Finstead Bite is to help you realize how much money you're losing by investing long-term in securities with pronounced decays, such as UGAZ. We will quantify the decay for UGAZ. First, let's cover the basics. UGAZ is an exchange-traded note based on the S&P GSCI Natural Gas Excess Return Index. It is intended for sophisticated investors to manage daily trading risks. UGAZ is significantly riskier than securities with long-term investment objectives and is predominantly used by day traders. What many investors don't understand is that UGAZ price is only indirectly tied to the price of natural gas. UGAZ attempts to be a direct derivative (+3X) of the S&P GSCI Natural Gas Excess Return Index, but often doesn't accomplish this mission, particularly in the longer term. This S&P GSCI Natural Gas Excess Return Index is composed entirely of natural gas futures contracts and is derived by reference to the price levels of the futures contracts on natural gas, along with the discount or premium obtained by rolling hypothetical positions in such contracts forward as they approach delivery. Now, let's look at the UGAZ price for two dates where the S&P GSCI Natural Gas Excess Return Index roughly had the same value, 10.3. The Index achieved this value on March 4, 2016, and December 5, 2017. UGAZ end-of-day price on the former date was 17.92, and it was 7.54 on the latter day. Date NatGas ER Index UGAZ price ($) 03/04/2016 10.3 17.92 12/05/2017 10.3 7.54 Between those two dates, UGAZ price declined -58%, while the Index stayed flat. If you annualize the impact of decay, the loss you can expect to see by investing in UGAZ is -39% per annum. That means, for every $10,000 invested in UGAZ at the beginning of the year, you should expect to see $6,100 at the end of the year assuming no change to the Natural Gas Excess Return Index. The takeaway is simple: do not invest in UGAZ long term, because the consequences may be catastrophic. UGAZ long-term return confirms this point. Over the last year, UGAZ returned -74.21% (see the chart below).
Long term chart of /NG and S&P GSCI Natural Gas Excess Return Index are not matching. Extended expiration futures are very illiquid with high premium. I've concluded that there's no cost effective way for long term Natural Gas investment...... Too bad.
Sounds like a dip to buy. I'm telling you, we are in for a cold winter here. My knees are starting to chatter and worry.
In response to the previous posts...(UGAZ) Not only was it never the correct answer. Using equities would create an accounting/auditing nightmare for the OP's intended purpose. Not only is it a shaky hedge at best, it would never be allowed as a hedge by regulatory standards. The way he is approaching it is correct.
How about buying current month contract and selling later month contract at the same time? (For example, buying November contract and selling December contract). When current month's expiration approaches I liquidate them altogether and grab some spread. This spread can be positive or negative at each expiration but if I believe /NG price will increase in the long run (currently we are at nearly historic low price), the total sum of each spread betting should be positive. Am I correct? Worth trying? Can it be more cost-effective than just rolling over to next month?