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Trading Natural Gas ETNs on Weather Data

Written By Jeff Siegel

Posted December 2, 2014

nattylowVegas is wasted on me.

Whenever I head to Sin City, it’s almost always for a conference. And I never gamble.

Not that I have anything against gambling. Truth is, I’d love to own a piece of a profitable gambling outfit. After all, no matter how bad the economy gets, there’s never a shortage of gamblers.

But for the most part, I’m not a big risk-taker.

Sure, sure. Fortune favors the daring. But fortune also favors rational, disciplined thinkers who act on real-time data, and not on emotion.

A perfect example of this is trading natural gas stocks based on weather data.

No, it’s not a perfect science, but even an underachieving C-student like me knows that cold snaps do wonders for natural gas stocks. And when warnings of last months polar vortex hit the news streams, I knew it was time to lock in on at least one of the few solid natural gas funds that were begging to be bought.

Traders had a particularly nice ride on the VelocityShares 3x Long Natural Gas ETN (NYSE: UGAZ) which saw its shares pop a good $5 in a matter of days – moving from around $13 a share to more than $18 a share, delivering a quick gain of more than 35%.

Of course, natural gas sold off again, but this certainly wasn’t – nor was it ever intended to be – a long-term hold. Yet looking at UGAZ today, I can tell you my trigger finger is itchy. Although weather conditions don’t look particularly brutal over the next few days, UGAZ is looking too long in the tooth to be ignored for this time of year. I like it at current levels, and really anything below $10.50.

On the flip side, after natural gas heads north again on the next cold snap, put some icing on that cake and consider buying on a big dip with VelocityShares 3x Inv. Natural Gas ETN (NYSE: DGAZ). When natural gas tanks, hungry traders devour DGAZ as an inverse play. Just take a look at the action on this one over the past five days …


Now look at UGAZ …


Don’t know how much further it’ll fall, but aside from a major heat wave descending upon the nation, I’m not expecting it to break below $10.00.

Full Disclosure: I bought some UGAZ today on the dip.