Monday, February 13, 2017

Shorting UGAZ and DGAZ

I've posted a few option trades to this blog, but I also made a trade today that was in the original spirit of the blog, because I was able to make it.

The concept is to short BOTH sides of a leveraged 3X ETF pair.  In this case, the Velocity shares Natural Gas ETF $UGAZ and it's inverse $DGAZ.  I shorted both in equal dollar amounts. 

I got $DGAZ at $5.15 and $UGAZ at $20.21 after hours.  No options are available for these, and that's not the type of play I want to make.

If you look at a chair of these paired together, over a long enough period, they both decline.  In the three month chart I ran today, they both have dropped 30% over that time period.  I believe it's the daily rebalancing that causes that, although there may be a more technical reason.  If so, let me know but it's not necessary to know why when it is clearly obvious it does happen consistently.

It's a good strategy but not foolproof. If one side of the pair goes up consistent and too much, it can result in losses.  There's more on that in some older posts. Sometimes it takes many months or years to profit from this strategy. Also, it's not always possible to short these, and the broker can request the shares back at any time.

Anyway, that's the trade.  I have it in a longer term account along with a short position in $UVXY AND $XIV. 

Good luck.

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