Story Highlights
- Meteorologists are predicting a mild winter — but their predictions are notoriously unreliable.
- An extended winter or other unexpected events can lead to a shortage of natural gas.
- Anthony Planas shares how to play this resource for short-term gains.
A cool breeze sweeps through my jacket.
I feel the crunch of leaves under my boots. Above me, the palm trees are changing color…
OK, I live in South Florida.
Fall doesn’t really exist here. But I like to imagine what it might look like if it did.
While I may miss out on fun fall activities such as raking leaves or winter coat shopping, there are plays we can all enjoy during the fall.
Now is the time to get in on one of my favorite speculative trades. While it holds higher risk, the potential for big gains makes it more exciting. And I think you’ll enjoy getting in on these plays…
America Runs on Natural Gas
Nearly a third of the energy used in the U.S. is from natural gas.
And the demand for this natural resource soars during the winter. Heaters run feverishly to warm our indoor habitats.
Because of that, the U.S. stocks up on natural gas all summer long in hopes of having enough for the winter ahead.
But despite our best efforts, predicting the weather always proves to be a challenge. That can leave us with a glut or shortage of natural gas.
And there is an exciting way to play this. I have two exchange-traded notes (ETNs) for you at the end.
But before I share the setup I see today, I need to warn you: These are risky positions.
These funds are leveraged. That means they magnify your rewards, but the risk is also higher.
And they are not meant for long-term holding. These are for short-term speculative plays.
In other words, consider any money in these funds to be little better than chips at a poker table.
But if you’re careful and up for the challenge, you’ll have fun with these trades … and end up with hefty profits in your pocket.
Why Unremarkable Weather Is Exciting
We are heading into winter with natural gas inventories on par with the five-year average.
The National Oceanic and Atmospheric Administration (NOAA) is predicting an “El Niño” weather event. This is a climate pattern that starts with temperatures in the Pacific Ocean rising above normal levels.
Which is just to say that NOAA thinks there is a mild winter ahead. This is the boilerplate forecast for a warmer year.
But it is anyone’s guess how this winter may actually turn out. A strong polar blast or an extended winter could put a serious strain on natural gas supplies.
You see, natural gas prices are low, which means the markets are too comfortable with the idea of a mild winter.
That’s why I’m bullish on the price of natural gas this winter. I think markets are too complacent. Prices could rip higher on a deep chill.
To be clear, I don’t think prices will stay high. But we could see short price spikes.
Take a look at the chart below.
The blue line is the storage level. The gray area is the average range for storage levels from the previous five years.
You can see along the dashed line that we are at the upper end of inventory levels.
The direction of the supply for this resource is what we can play for some quick gains…
2 ETNs to Play Natural Gas
As I said earlier, I have two exchange-traded notes for you today. These focus on natural gas, of course:
- VelocityShares 3x Long Natural Gas ETN (NYSE:UGAZ).
- VelocityShares 3x Inverse Natural Gas ETN (NYSE: DGAZ).
Last year, we went into the winter months short on natural gas. That caused prices to spike. My readers had the shot at gains of 182% with the 3x Long Natural Gas ETN!
And later on, readers who followed me on my bet against natural gas also had the chance at triple-digit gains.
I’m not as bullish as last year. But I am just as speculative. I like UGAZ below $14. A tougher-than-expected winter holds the potential for triple-digit gains.
Make sure to bookmark or save this page to follow how this bet turns out.
Win or lose, I’ll update this article in the weeks and months ahead.
And let me know what your guess is for natural gas, and other speculative trades you’re watching. Leave a comment below!
Fun speculating,
Anthony Planas
Internal Analyst, Banyan Hill Publishing
P.S. In Real Wealth Strategist, Matt Badiali and I go in-depth about the cyclical nature of natural resource stocks. We recommend the best stocks to profit from trends just like the one in natural gas. You’ll get several opportunities right away — plus at least a dozen recommendations in the next year! Click here to learn more.
