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1. Chrib

   November 20th, 2009 at 2:25 am

   1

   sad part is, Natural Gas futures bottomed in September, doubled in price and is now resting atop gap support about 80% above its low.

   UNG, on the other hand, all-time lows. And here you thought FAZ suffered terrible decay!

2. Tim

   November 20th, 2009 at 5:11 am

   2

   Can someone explain why UNG continues to crater even though natural gas has recovered?

   Has this instrument failed? Will UNG go bust?

3. StockRake

   November 20th, 2009 at 3:18 pm

   3

   I know its crazy how UNG acts, mostly horrible. However, I think its going to work. Maybe a short squeeze is coming? Maybe some political change will help Nat Gas. I don't know, but something will fall fromthe sky that will be used as the reason for the Nat Gas run up. Action today is confirming or at least helpful.

4. Chrib

   November 20th, 2009 at 5:15 pm

   4

   As I understand it, UNG fund buys /NG futures, which are monthly contracts. So right now say the fund owns /NGZ9 (December futures). Upon expiry, the fund liquidates its futures holdings and rolls them into January futures (/NGF0). Unfortunately, /NG futures contracts exhibit contango, so January futures are much more expensive than December futures. Right now /NGF0 is 7% higher than /NGZ9. So when the contracts are rolled over, it may sell 100 contracts and roll over into 93 contracts, and it does this over and over each month. Such a huge percentage loss over time more than cancels out the rise in natural gas prices. At some point natural gas will no longer be in contango, at which point UNG will no longer decay as it has. There is supposed to be a new vehicle released, UNE, which is not supposed to decay so much, but I do not have much faith in the company that runs this fund. As long as natural gas is in contango, UNG is a great short.

5. StockRake

   November 20th, 2009 at 8:18 pm

   5

   I know its crazy how UNG acts, mostly horrible. However, I think its going to work. Maybe a short squeeze is coming? Maybe some political change will help Nat Gas. I don't know, but something will fall fromthe sky that will be used as the reason for the Nat Gas run up. Action today is confirming or at least helpful.

6. Chrib

   November 20th, 2009 at 10:15 pm

   6

   As I understand it, UNG fund buys /NG futures, which are monthly contracts. So right now say the fund owns /NGZ9 (December futures). Upon expiry, the fund liquidates its futures holdings and rolls them into January futures (/NGF0). Unfortunately, /NG futures contracts exhibit contango, so January futures are much more expensive than December futures. Right now /NGF0 is 7% higher than /NGZ9. So when the contracts are rolled over, it may sell 100 contracts and roll over into 93 contracts, and it does this over and over each month. Such a huge percentage loss over time more than cancels out the rise in natural gas prices. At some point natural gas will no longer be in contango, at which point UNG will no longer decay as it has. There is supposed to be a new vehicle released, UNE, which is not supposed to decay so much, but I do not have much faith in the company that runs this fund. As long as natural gas is in contango, UNG is a great short.