Josef SchachterHBP NYMEX Nat'l Gas Bull+HNU.TOCOMMENTApr 05, 2012

Complicated product that are not meant for average investor. Must be watched daily. Not a linear response to natural gas prices. Would not recommend for the long term investor. High volatility. 

A Levearge ETF. He advised to steer clear of these kinds of investment. They are trading vehicles the are intended to be watched daily. D

A double leverage natural gas ETF. He would not hold for the long term. Go for HNY-T as you lose 3-5% per month based on losses in the nature of the futures contracts in the leveraged ETF. He also likes the Junior Natural Gas ETF ZJN-T for longer term.

The problem with playing these leveraged products is that it is basically a gamble. You are anticipating a short-term move, and in terms of the double leveraged Bull, you are hoping that is going to be positive. This is really a gambling tool, and not something he would like to play. Natural gas has been struggling at its 200-day moving average and is starting to curl lower. The builds in inventory levels over recent weeks have been higher than average. Going forward, we are looking at moderate temperatures in the US, so it doesn’t present that bullish backdrop for a near term rise.

Continue to Short this? Natural gas prices are probably coming down over the next couple of years. If this is a levered play, you want to be very, very careful. The way they do these things is that they roll them on a futures contract, and then have to keep buying the expiry. If you want to play natural gas, be very careful of the underlying structure that you are looking at.

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.