UNG set to drop? Effects of rollover?

Discussion in 'ETFs' started by Mr. KISS, Aug 16, 2009.

  1. Mr. KISS

    Mr. KISS

    I'm holding SEP Natural Gas Futures contracts. I know that UNG is currently in the process of selling SEP and buying OCT (just found this out). Does this mean it is wise to sell contract ahead of UNG's rollover since all that selling will depress the price or does the price typically rebound after the are done, or does not not matter and everything equalizes out in the long run?

    Also the NAV on UNG is 11.88 and it is trading at 12.49. Huge premium because there are no more shares. I heard that due to the huge premium trading my be halted, or, UNG will have to add more shares. Seems like either one of these actions will cause a steep price decrease. Especially if trading is halted, seems people panic and sell.

    FCG is alternative but it isn't a pure play on Natural Gas as it is effective by the stock market movements (it has done much better than UNG do to the market rally.) Seems we are due for a pull back so probably not the bst time to switch from FCG to UNG?? But barring another economic collapse, seems like in the long-run FCG should continue to outperform UNG benefiting from not only the eventual rise in NG prices but also the rise in the market in general.

    Feedback is greatly appreciated.
  2. hajimow


    Check out this game theory.

    Lets assume 20 traders know the rollover date of UNG which 20 of the month. The first person wants to do ahead of 20, so he does it on 19 and Trader number 2, will try it to even go ahead of trader #1 so he does it on 18 and so.... so the price movement will happen gradually and you won't see a big turbulance on 20 of the month. Conclusion: Your trade is already old and everyone has read your hand.
  3. UNG is already starting to go into a couple of $500 million dollar swap agreements with some banks. This allows it to reduce its dependency on being LONG the nat-gas futures contract, which the CFTC has already cited is a concern.

    By reducing the nat-gas futures open interest that they control in lieu of swap agreements, UNG is probably getting to the point where they can issue shares again.

    As a result, the 14% premium over NAV is bound to collapse.

  4. Getting crushed today for yet another 5.5% loss.

    The PREMIUM yesterday was at 18% to the NAV.

    No one in their right mind should be buying this ETF.
  5. This ETF is about to follow the way of the Dodo, go lok at what is going on with DXO today. UNG will be doing the same soon, CFTC is putting in hard limits that will kill these vehicles. So the 18% premium is a gift to the wise!

    Sell Mortimer, sell!!
  6. S2007S


    These type of investing instruments are so complex that I have no idea why they were introduced in the first place.

    I invested in the macroshares ETN around a year ago and sold out at a loss on those ETNS, a month or 2 later they issued new ones and closed them due to the fact there was no interest in them.

    Fast forward to this summer and the new macroshare case shiller up and down housing trading vehicles are trading now which everyone knows they will probably go away very soon.
  7. S2007S


    Besides UNG what is the right stock or etf to play when natural gas does bottom, I think it could easily approach 2.
  8. hajimow


  9. Yes, but one trades at a premium to its NAV, and the other trades in line with its NAV.

    Furthermore, one is based in the U.S., which is being subjected to all sorts of ridiculous regulatory garbage vis a vis the CFTC, whereas the other is based in Canada (apparently the new land of the free) and is not bound by any such regulations on position limits, et al...
    #10     Sep 2, 2009