Wednesday, January 29, 2014

Big day for Natural gas

Today was a crazy day for the natural gaz ETF UGAZ. I'm bringing this chart from a longer time frame so you can see the magnitude of the last days move.

What I've learned from this trade is a lot. I've done several mistakes so far. I'm going to some them up.

1. First of all I played it too hard leaving me too little margin for errors and no buying power if the move should go further against me.
2. I didn't pay attention to the fact that the inverse ETF DGAZ and the straight ETF UGAZ was trading at 10% percentage points difference. I went heavily into long DGAZ and even covered some of my short UGAZ. After that UGAZ kept the same price while DGAZ fell sharply. It was a case of DGAZ being wrongly priced compared to the underlaying commodity.
3. Considering point two I should have been more invested in short UGAZ than I am now.

Here's how I would have played it differently. Make a limeted sized short bet at the first position. Wait until a substantially better price develops, bet another 5% short. (I did almost this, went into the second short position a little too fast.) Wait further,when an opportunity like this develops, bet but not too hard. Keep attention to difference between long and short ETF price. Make one more short or at least keep the previous shorts and then bet on longs.

I now live dangerously and lost almost 10% of the total portfolio value in one day. Tomorrow will tell what happens to my account.

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