My “Ultimate Guide” to shorting UGAZ: Part 3: How to Protect – Cover the Position

It would seem shorting UGAZ and DGAZ together is the most popular scenario in the world of shorting natgas ETFs.  I’ve done my best to run short-and-hold scenarios for this combination, but also using UNG, NG1 and NG2 to cover my theoretical UGAZ short.  I’ve shared Google sheets used to do these comparisons.  On down the page I’ve made a few notes and taken screenshots of each scenario.  You can also make copies of the documents in order to manipulate the timeline which will be explained below.

WARNING:  When I say this is for educational purposes, it is certainly that.  These documents are only to show a couple of aspects of a very risky investment.  Do not base your trading on these documents,  I will not be.

I’ve made many discoveries since beginning this series of posts. I’ve known shorting UGAZ was an option for a couple of years, but never took a chance for two reasons; it wasn’t so easy to retrieve shares to short UGAZ, and I wasn’t sure of the risk vs reward. I hadn’t even considered the fact that the shares had to be borrowed and my position could be closed by the broker. This paranoia has led me down this path to cover the short position with a long in order to prevent possible (no matter how unlikely) catastrophic loss.

For those whom haven’t read any of my previous warnings, shorting UGAZ can be most dangerous. Even in a position well protected from a margin call, the position could be closed by the broker in order to give the shares back to the rightful owner of those shares. Granted the shares are pooled in an account somewhere and the brokers try to keep this from happening by limiting how many shares they loan out to be shorted. No matter how slim the chance, this is still a possibility.

On to using the documents.  My shared documents cannot be edited, but you can make a copy and edit as you see fit.  The ‘inputs’ tab is fairly simple and self explanatory.  The scenario for all documents shared follow daily activity of UGAZ and DGAZ (or UNG, NG1, NG2) starting Dec 21, 2017 until Jan 3, 2020. 

NOTE: If the percentage invested is adjusted too high for UGAZ, DGAZ, UNG, NG1, or NG2, the amount of funds required to cover a position will exceed the Account Balance.  

The fun begins

In each of the documents you can alter the number of shares for any given day in the Data tab.

The yellow columns are the number of shares held for each position based on the percentage of funds dedicated to each position.  The number of shares can be increased or decrease throughout the columns.  When a number in the shares column is edited, every cell after the edited cell will copy that last number.  Be aware again that when the number of shares are adjusted, this will alter the funds required to hold the position.  I recommend not altering the first row (row 2) since there is a formula that may not be so simple to put back. 

To put the cells back to original, I recommend copying an unedited cell and paste that into cells that have been edited.  If you get lost and can’t fix your mistakes, you can always come back to my version and make another copy.  I’ll do my best to answer any questions you may have.

On to the Results.  Each of these small galleries have images that can be clicked to view the full screen image.

In this first set I’m showing my results of shorting equal parts (% of funds invested) UGAZ/DGAZ.  I’ve also included the original UGAZ only short.  All images can be clicked on to enlarge.

UGAZ short vs UNG long

UGAZ vs NG1

UGAZ vs NG2

I can only hope you find something about this information useful, at least as a warning against loss prevention.  Cheers!

Oldinvestor