The Different Ways To Short Natural Gas and Profit

There are several different ways to short natural gas and profit.  The purest way to short natural gas is by buying put options on natural gas futures contracts.  This provides direct exposure to natural gas price changes.  If natural gas futures contracts fall in price, put options will increase in price.  For traders that do not engage in buying put options, they can establish a short position in natural gas by either shorting long-oriented natural gas futures Exchange Traded Funds (ETFs) or by buying short-oriented natural gas futures ETFs.  These ETFs come in a variety forms, with exposure on the long and short side at one to three times the movement of natural gas futures.

The advantage of going short natural gas by shorting long-oriented natural gas futures ETFs is that ETFs that derive their value from futures contracts often experience price decay over time, as they have to continuously replace their positions in futures contracts as the front-month contracts expire, which can cause them to lose small amounts of money each time they have to roll over into a new front-month futures contract.  Shorting long-oriented natural gas futures ETFs takes advantage of this price decay by increasing the downside potential verses short-oriented natural gas futures ETFs.  However, it can be difficult to find long-oriented natural gas futures ETFs shares to short, and if the trade goes in the opposite direction as anticipated, a trader may be hit with a margin call, as the long-oriented natural gas futures ETFs increase in value.

The advantage of going short natural gas by buying short-oriented natural gas futures ETFs is that they are easy to buy.

The following is a list of long-oriented natural gas futures ETFs that can be shorted to profit from a decrease in the price of natural gas futures contracts.

• 1X Natural Gas Long ETF:  United States Natural Gas (NYSE:  UNG) is a one times (1X) long natural gas ETF.
• 2X Natural Gas Long ETF:  ProShares Ultra DJ-UBS Natural Gas (NYSE:  BOIL) is a two times (2X) long natural gas ETF.
• 3X Natural Gas Long ETF:   VelocityShares 3x Long Natural Gas ETN (NYSE:  UGAZ) is a three times (3X) long natural gas ETF.

The following is a list of short-oriented natural gas futures ETFs that can be purchased to profit from a decrease in the price of natural gas futures contracts.

• 2X Natural Gas Short ETF:  Horizons BetaPro NYMEX Natural Gas Bear Plus ETF (OTC Pink:  HBNND) is a two times (2X) short natural gas ETF.
• 2X Natural Gas Short ETF:  ProShares UltraShort DJ-UBS Natural Gas Fund (NYSE:  KOLD) is a two times (2X) short natural gas ETF
• 3X Natural Gas Short ETF:   VelocityShares 3x Long Natural Gas ETN (NYSE:  DGAZ) is a three times (3X) short natural gas ETF.

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