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If you guys are down for a trade...

By: StudioCity'98



...then I gots a decent one for you.

$DGAZ is a not your normal Stock or ETF.  It's a 3x Inverse ETN [Exchange Trade Note] of physical Natural Gas that trades just like a normal issue with a normal Bid/Ask, can be bought just like a stock through your Broker or Online Brokerage...etc.

However a word of caution:  The rule is that all 2x or 3x leveraged long/short issues [ETF's/ETN's]  are not suitable for long-term holding [>8-12mos] because they have this 'decay" function as a result of the inherent leverage employed in their creation.  Explaining the decay would be needlessly confusing and it's not needed to understand this trade idea.  Of course, since $DGAZ has triple leverage you get some serious bang for your buck too.

The set up is that Natural Gas has spiked way, way abnormally high due to tight supplies creating a bottleneck at the Henry Hub delivery point. And a cold weather snap has descended across NorthAm. The weather happens every Winter/Summer and Natty Gas goes up/down every year.  It's a very consistent trade that I've put on at least twice per year for the last 25yrs+   But this year Natty Gas supplies just happen to be extraordinarily tight in addition the normal weather market trade.  This will normalize, it always does.  We just don't know exactly when.

If you pull up a chart of its opposite 3x ETN, $UGAZ you will see that it has gone parabolic almost straight up from the $87ish level to a high of $260 today... in just eight trading days.  That is totally and completely unsustainable.  Natty Gas will break and come back down to Earth sometime soon. When exactly that will be, who knows. Could be tomorrow or a week or a month or two from now.  But it will come down.  This abnormal supply problem will straighten itself out soon enough.  In the meantime, this move has pushed $DGAZ in the opposite direction, way, way down to unsustainably low levels too.

Natty Gas will break and comes back to normal levels and find a new equilibrium. When this happens  $UGAZ's inverse, $DGAZ will go back up to its normal equilibrium levels. $DGAZ closed today at $2.90.  At such low levels, the risk on this trade is exceptionally low.  It can only go to $$zero, which it's not going to do because Natty Gas is not going up to infinity in price. Just doesn't work that way.

So, super low-risk trade is buying $DGAZ as soon as possible, like tomorrow, and as close to $3.00 - $3.50 as possible.  Then just sit back and wait for market forces to equalize the price of the Natual Gas market.  Seasonally, a top in Natty Gas is due by tomorrow.  But when people talk about seasonality they're referring to averages over time, many months and years. Seasonality is a very blunt measurement.  But market forces always work.

In fairly short order $DGAZ should go from the $2.90 area where it closed at today back to at least $12 - $15, maybe $20, or even higher depending on how quick and violent Natty Gas breaks.  Hell, $6.00 is a layup from here, that's a quick double even there.

Needless to say, I own a metric shit ton of $DGAZ from the closing price today of $2.90.  So, I'm in this trade now too.  If you've got some F-you money, and feel like taking a speculation that is guaranteed to equalize at higher prices [just a matter of when] then this is a pretty good way to make some easy money.

[note: since this is still a very volatile market if one buys $DGAZ at $3.00 or close to that, it could trade lower for a few days, week, also...no need to worry about it, just let the market work itself out] 

Good luck,

You guys can thank me later. :-)

[as always, not advise and all that crap the SEC forces me to say]

   

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