An exchange traded fund that invests in natural gas futures fell to a new all-time low on Tuesday as trading volume in the ETF has picked up lately.
U.S. Natural Gas Fund (NYSEArca: UNG) was fractionally negative on Tuesday but pared its loss after touching a low of $6.36 a share.
The commodity ETF ended 2011 with a loss of about 46% as lower natural gas prices and contango in the futures markets weighed on the fund.
Yet in the options market, bullish call buyers have surfaced recently in U.S. Natural Gas Fund, according to Street One Financial.
Amid colder weather forecasts for much of the Northeast U.S., the call buyers are “likely making a play on higher natural gas prices for the near term,” Street One said. “We point out that UNG traded very heavy volumes late last week and plunged to multi-year lows.”
The ETF “invests in near-month natural gas futures contracts trading on the NYMEX in an attempt to proportionately track the price of natural gas,” Morningstar writes in a profile of the fund.
“On many levels, market liquidity and the absence of carrying costs make using futures a better way to invest in natural gas than owning the commodity directly,” the investment researcher noted. “Investors should still endeavor to understand the implications of futures trading because substantial risk is involved and performance will not necessary follow the spot markets.”
U.S. Natural Gas Fund
Full disclosure: Tom Lydon’s clients own UNG.