the latest goings in the natty gas/UNG markets
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Gas Fund Roll ‘Slaughtered’ Traders, Adds Volatility (Update2)
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By Asjylyn Loder
Sept. 17 (Bloomberg) -- 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.”
The U.S. Natural Gas Fund, which trades under the ticker UNG, began selling, or rolling, its October contracts and buying November contracts on Sept. 14, and will complete the roll into November contracts today, according to its Web site.
John Hyland, chief investment officer for the Alameda, California-based fund, said anyone betting that the roll would widen the spread between October and November gas contracts had “only a random chance of being right.”
Contract Spread
The spread between the two contracts nearest to expiration reached $1.15 on Sept. 4, the highest since October 2006, weeks after the hedge fund Amaranth collapsed after losing $6.6 billion on its natural gas bets. Thirty-day historical volatility for gas futures yesterday was the highest since November 2006, according to data compiled by Bloomberg.
“We have tended to observe over the months that -- despite the claims of some of the bloggers, self-proclaimed ‘experts,’ business TV circus freaks -- there does not seem to be a predictable pattern where the front month-second month spread gets wider at the time of UNG’s roll,” Hyland said.
Bets on the spread between the October and January futures helped bolster volatility, said Laurent Key, an analyst with Societe Generale SA in New York.
“We expected the volatility around the roll of the UNG,” Key said. “People try to take advantage of this. However, there’s another issue. Natural gas is a market that is really liquid in a few spreads, and the October-January spread is one of the really liquid spreads.”
Liquid Market
High inventories and UNG’s coming roll had traders betting against October prices and going long on January, when cold weather could boost heating demand for the fuel, Key said. The spread widened to a high of $2.31 on Sept. 3.
“The spread had been so high that people, including us, advised clients to get rid of this position and short the spread,” Key said.
Traders anticipating a narrower spread began buying October and selling January, pushing natural gas prices up this week, Key said. The higher prices triggered short covering from traders with the opposite bet, pushing prices still higher and boosting volatility. The October to January spread narrowed to $1.80 yesterday, the lowest since Aug. 10.
Key predicted that natural gas prices will fall next week due to high inventories. The spread will once again widen, he said.
Gas Declines
Natural gas for October delivery fell 30.2 cents, or 8 percent, to close at $3.458 per million British thermal units on the Nymex. The October to January spread widened to $1.90.
Supplies rose 66 billion cubic feet in the week ended Sept. 11 to 3.458 trillion cubic feet, the Energy Department said today. The government supply report showed that gas stockpiles are 16 percent above five-year-average levels for this time of year. The Energy Department expects supplies to exceed the record of 3.545 trillion cubic feet reached on Nov. 2, 2007.
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Gas Fund Roll ‘Slaughtered’ Traders, Adds Volatility (Update2)
Share | Email | Print | A A A
By Asjylyn Loder
Sept. 17 (Bloomberg) -- 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.”
The U.S. Natural Gas Fund, which trades under the ticker UNG, began selling, or rolling, its October contracts and buying November contracts on Sept. 14, and will complete the roll into November contracts today, according to its Web site.
John Hyland, chief investment officer for the Alameda, California-based fund, said anyone betting that the roll would widen the spread between October and November gas contracts had “only a random chance of being right.”
Contract Spread
The spread between the two contracts nearest to expiration reached $1.15 on Sept. 4, the highest since October 2006, weeks after the hedge fund Amaranth collapsed after losing $6.6 billion on its natural gas bets. Thirty-day historical volatility for gas futures yesterday was the highest since November 2006, according to data compiled by Bloomberg.
“We have tended to observe over the months that -- despite the claims of some of the bloggers, self-proclaimed ‘experts,’ business TV circus freaks -- there does not seem to be a predictable pattern where the front month-second month spread gets wider at the time of UNG’s roll,” Hyland said.
Bets on the spread between the October and January futures helped bolster volatility, said Laurent Key, an analyst with Societe Generale SA in New York.
“We expected the volatility around the roll of the UNG,” Key said. “People try to take advantage of this. However, there’s another issue. Natural gas is a market that is really liquid in a few spreads, and the October-January spread is one of the really liquid spreads.”
Liquid Market
High inventories and UNG’s coming roll had traders betting against October prices and going long on January, when cold weather could boost heating demand for the fuel, Key said. The spread widened to a high of $2.31 on Sept. 3.
“The spread had been so high that people, including us, advised clients to get rid of this position and short the spread,” Key said.
Traders anticipating a narrower spread began buying October and selling January, pushing natural gas prices up this week, Key said. The higher prices triggered short covering from traders with the opposite bet, pushing prices still higher and boosting volatility. The October to January spread narrowed to $1.80 yesterday, the lowest since Aug. 10.
Key predicted that natural gas prices will fall next week due to high inventories. The spread will once again widen, he said.
Gas Declines
Natural gas for October delivery fell 30.2 cents, or 8 percent, to close at $3.458 per million British thermal units on the Nymex. The October to January spread widened to $1.90.
Supplies rose 66 billion cubic feet in the week ended Sept. 11 to 3.458 trillion cubic feet, the Energy Department said today. The government supply report showed that gas stockpiles are 16 percent above five-year-average levels for this time of year. The Energy Department expects supplies to exceed the record of 3.545 trillion cubic feet reached on Nov. 2, 2007.
