UNG: The Effects of Contango

Traders just can't get enough of the United States Natural Gas (NYSE:UNG), be it speculation, contango, and most important -- clocking much dollars thanks to natural gas. The Masters turn to H.T. Love (who has a killer headset) and get the latest concerns with investing in the UNG.

(H.T. Love) I have very little to say here as a picture is worth a thousand words.

If you have followed my posts and comments, or those of many more knowledgeable Seeking Alpha participants, you are by now aware that UNG has changed the way it attempts to accomplish its goal to avoid possible CFTC limits. You are also aware of the issue of negative roll yield during periods of contango.

These issues have been described, but the words you have read may not have had as dramatic an impact as the below image.

The below partial "snapshot" of this UNG Daily Holdings web page, on Wednesday 10/14 at 21:16 EDT, tells the whole story. Note that it changes daily, so the contents may vary depending on when you visit the page.

Do the math and note the reduced number of positions after completion of the next three roll periods (hint: -7,955?). On a part of the page above that is not shown in the "snapshot", the total holdings after the first roll day was completed are 180,960 positions. If price ratios remain unchanged over the next three rolls, the net positions will decline a further 4.4%.

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