There's Something to the Contango ETNs

Yesterday I wrote about some of the frustrations shared by investors who have sought exposure to natural gas in recent years and highlighted Natural Gas Futures Contango ETN due June 14, 2041 (GASZ) as a potentially interesting tool to profit from the contango that has crippled ETFs such as United States Natural Gas Fund (UNG) over the past several months. Today I'm returning to dive a bit deeper into what is a very innovative and, as it turns out, profitable strategy behind this ETN and several similar products offered by UBS.

GASZ maintains net long exposure to natural gas futures contracts, making it similar to UNG, iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN (GAZ) and other natural gas exchange-traded products in that regard. But there are two components of the exposure -- namely, a long position in midterm futures contracts (which tend to be less severely impacted by contango) and a short position in short-term contracts -- that mean that this ETN is essentially playing the house by selling short-term futures contracts, profiting from the steep contango at the near-term end of the futures curve. If UNG is flying into stiff headwinds, the short portion of the GASZ portfolio has those same winds at its back....485 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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