Smart Money Killed By Front-Running Natural Gas ETF

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The United States Natural Gas ETF (UNG) has been a juicy target for many traders, given its ostensibly predictable natural gas contract roll every month.

Yet just recently, these players got killed as UNG’s management suprised them with a change in trading method.

For the latest contract roll, UNG diversified its trading into many contracts on different exchanges in order to avoid the usual front-runners who had set themselves up.

Thus there was little to hold back a recent 27% price spike in October natural gas futures, which blew apart traders shorting them in the hopes that UNG would be selling. The Schork Report even suspects that a hedge fund, aware of the crowded trade, could have helped make the short-covering rally worse.

Bloomberg: “The ‘smart money’ was positioned ahead of the roll,” Felesky said. “Everyone was on the same side of the trade. The roll was a non-event, and everybody got slaughtered. I think it’s the pros that got killed.”

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