HBP NYMEX Nat'l Gas Bull+ (HNU.TO)

ETF’s are an incredibly convenient thing to use, but they are not the only things. If you are buying something like this, a bullish or bearish commodity bet using an ETF, it is very expensive and an unreliable way of going. He would encourage you to use the futures market. It is much easier to do, and a much purer move.

A double leveraged play for Natural Gas. Future prices of gas are already in this. This is fine for a short term trade of a week or two, but you need to understand the forward nature of the curve. You need more increase in gas prices than the futures contracts predict. He does not think there will be a big boom in Natural Gas this summer. ZJN-T is junior companies and is a better way to play gas.

Leveraged ETFs are toxic for long term holding. The more volatile the underlying asset its, the more toxic it is. It is great for short term trading. You don’t go out and sit on this because the price of Nat Gas will eventually go up. ZJN-T is a good one to sit on for Nat Gas exposure. You can play it for a long period of time.

You can’t hold it for long periods of time. Nat Gas is the most volatile commodity we have. The way they rebalance it could be toxic. You would lose 20-25% in a year in a sideways market. You have to be making a short term call of maybe a week or two. The problem is the leveraged 2:1 aspect of it and nightly rebalancing. ZJN-T would be a better one to invest in Nat Gas for a longer term.

Leveraged Bullish play on Nat gas. He sees ETFs as mindless things. In this case he has pondered it many times. It is a way to buy the improvement in the gas price, which is lagging all the other improvements that are going on. You have to be careful with leveraged products because they can erode.

Natural gas has been absolutely hammered. Natural gas has 2 seasons. One is in the fall for the heating season, and the next season coming up is for air conditioning, which starts towards the end of March, and is typically a good time to be moving into it. This one is a leveraged product and you don’t want to be holding it for a long period of time. He uses this, but only for a few days. For a longer period of time, you should be using Horizons NYMEX Natural Gas (HUN-T).

He doesn’t understand the belief that natural gas is going to be going up. Until he sees this market turning around, he is really not interested. This is something that people have been caught on. They have gone into it thinking that it was a good, long term play, but it is not. It is a trading play.

El Niño is predicting a warmer winter for us. Storage levels for natural gas are getting fuller and this is predicated on a warmer winter and less draw down and how full those storage capacities can get. Natural gas is a good product, but the supply constraints will not be going away anytime soon. He thinks it is going to be lower for longer. Leveraged products like this should not be held for longer than a week or so. There is risk here.

They will tend to do a reverse split when it gets down to a low enough price. Gas prices have a very steep curve. If the spot price does not improve over the winter, you are looking at losing about 25% just in the steepness of the curve. You don’t want to hold this for any more than a couple of weeks. You can’t buy and hold. It is double leveraged.

There is always risk in these. Every day, to get the 2 to 1 leverage, when the market goes up they have to buy more of the derivative the next day to get the same benefit. When the underlying commodity is volatile, you get more erosion of the ETF value. Nat gas is amongst the highest in volatility. It is better to play it with the equity ETFs. ZJN-T, for example.

Double leveraged fund. You only use it for short term holds. The seasonal period starts right now until the end of June, getting a return of 12% typically. We are starting to see some flatness in the chart now. HUN-T is not leveraged. There is less volatility.

Whenever he has bought anything to do with natural gas, he has always lost money on it. He is not very bullish on natural gas. Prices are just not there.

This is the Nat Gas double up. He would not do this right now. There is some really high risk here. It is a falling knife. You need to increase the probability that Nat Gas will move higher. Wait for a move higher.

Natural gas right now is looking rather appealing. The chart shows it has been forming a basing pattern over the last few months. It is now coming into the period of seasonal strength for natural gas. From about now through until November, natural gas tends to do well. If we see support hold at about $3.70, you would expect this to go significantly higher. Looking favourable for a move higher through to November. Because this is leveraged to 2X the price of natural gas, you have to be nimble.

Thinks the outlook for natural gas as a commodity is good. Two things have really impacted the demand for natural gas. One is weather and the other is industrial production. Industrial production in the US is starting to pick up, so demand for natural gas will be there. You could either play the commodities or play the companies. In this particular case he would recommend that you buy futures direct. ETF’s in this case are not particularly effective.