Traders Show Sudden Enthusiasm For This Nat Gas Trade

Following the arrests of 11 princes and four ministers in Saudi Arabia, oil commanded most of the headlines in the energy patch Monday. However, some traders aren't overlooking natural gas. The United States Natural Gas Fund UNG jumped 4.7 percent on volume that was more than double the daily average.

Monday's pop trims UNG's year-to-date decline to about 30 percent, a tumble that underscores the status of natural gas as one of this year's worst-performing commodities. Some traders are betting natural gas's woes are over, at least for the near-term, and they may be correct as UNG has rallied about 14 percent of its recently set 52-week low.

Renewed enthusiasm for natural gas futures and exchange traded products is benefiting leveraged fare, such as the VelocityShares 3x Long Natural Gas ETN UGAZ. UGAZ on Monday jumped about 13 percent on volume that was nearly triple the daily average.

UGAZ Details

“Interestingly, UGAZ is the largest Natural Gas linked product in the U.S. landscape at the moment, bigger than even the $619 million 'benchmark; name in the space UNG,” said Street One Financial Vice President Paul Weisbruch in a note. “UNG debuted way back in 2007 and has recently attracted about $75 million in new assets via creation appetite, but UGAZ, which debuted in 2012 has proven to be a favorite of traders and short term directional speculators whom may be playing Natural Gas prices through ETPs.”

UGAZ is designed to deliver triple the daily returns of the S&P GSCI Natural Gas Index. The ETN has a bearish counterpart, the VelocityShares 3x Inverse Natural Gas ETN DGAZ. DGAZ attempts to deliver triple the daily inverse returns of the aforementioned natural gas index. DGAZ lost 13.2 percent on heavy volume on Monday.

Reminding investors that neither DGAZ nor UGAZ should be held for long than a day or two, DGAZ was trading around $33 earlier this month before closing below $25 on Monday.

Big Turnover

Volume data indicate traders frequently turn to DGAZ and UGAZ to express short-term views on natural gas.

“For example, UGAZ averages more than 15.6 million shares traded on an average daily basis as compared to UNG’s 6.7 million shares, and UGAZ’ sister ETN DGAZ is rather popular as well averaging 3.8 million shares on an average daily basis and slotted as the third largest ETP in the Natural Gas category with about $107 million in assets under management,” said Weisbruch.

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