Thursday, September 17, 2009

Bloomberg: "Gas Fund Roll Slaughtered Traders"

"Speculators trying to profit from the U.S. Natural Gas Fund’s roll of futures contracts got “slaughtered” and helped boost volatility as gas prices surged this week, said Adam Felesky, chief executive officer of BetaPro Management Inc.

Gas for October delivery rose 27 percent, through yesterday, on the New York Mercantile Exchange, forcing traders to cover bets that the gas fund’s sale of the contract would reduce the price, Felesky said. Volatility jumped to the highest level since Amaranth Advisors LLC collapsed in September 2006.

Speculators shorted October gas, anticipating that the $4 billion gas fund would push prices down when it began selling its October contracts on Sept. 14, said Felesky, whose C$1 billion ($937.1 million) Horizons BetaPro Nymex Natural Gas Bull Plus ETF rolled around the same time as the larger fund.

“The ‘smart money’ was positioned ahead of the roll,” Felesky said. “Everyone was on the same side of the trade. The roll was a non-event, and everybody got slaughtered. I think it’s the pros that got killed.”"

I love this simple story of how "pros" got raped by their greed while trying to take advantage of retail investors. Find the rest of the article here.


Anonymous said...

This is stupid.. Everyone has the idea of UNG when rolling selling front month to buy back, yet they fail to realize that the past few months when UNG has been rolling, the market has rallied. Only people who got killed were greedy shorts and UNG option holders. Shorts stampeded and tripped over each other for the exits.

seeer said...

I have UNG with the average price of ~9,5. I sold half of my position on the day before yesterday (~11,7).

When I saw the lots of negativity about natural gas (see news and topics) I decided to buy as much as I can. :D

This is how the market works.

donnydarkpool said...

Pyth - been following your blog since you've been on natty watch. Been tough on all to work through capitulation.
Noticed that you were shorting XLF - any new thoughts on that? ready to move to FAZ?

pythagoruz said...

Hey Donny,
Thanks for stopping by. I agree that the natural gas volatility is tough to stomach, but with volatility comes potential for profit.

I was shorting XLF a month or so ago in anticipation of false breakout/start to a cyclical bull market. The breakout actually ended up holding so I got stopped out and I now see stocks as in a cyclical bull market. I think that there is likely to be a large correction at some point, but it would be a correction in an uptrending market whereas before I was looking for a resumption of the long term downtrend/cyclical bear market. I now see the bear market as over.

Its tempting to buy those leveraged ETFs, especially the short ones that got crushed. But in my humble opinion those are extremely poor investment vehicles, especially for the long run. If anything I'd try shorting FAS rather than going long FAZ.