Why Hurricane Isaac Could Send The Natural Gas ETF Soaring? (UNG, UGAZ, DGAZ)

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August 27, 2012 4:04pm NYSE:DGAZ NYSE:UGAZ

Jared Cummans: As hurricane Isaac has continued to develop, it appears that it now has a clear path set to run through the Gulf and make landfall within the next 24 hours. Though it steered clear of the Republican National Convention, the storm

has now entered the Gulf area and could cause a lot of problems for the dozens of drilling rigs in the surrounding area. Not only that, but the storm is currently headed along a very similar path to 2005′s Hurricane Katrina, worrying residents and government officials. Three states have already declared an emergency and have begun to evacuate residents.

Likewise, a number of major oil and natural gas companies have begun to clear their rigs in the Gulf area which will put a halt on production and could tinker with the price of natural gas, as it is especially susceptible to stoppages and pipeline outings. Many investors underestimate the impact that hurricanes have on NG, but these natural phenomenons can provide lucrative trading opportunities. One of the most popular ways to take advantage of the coming storm will be to utilize the United States Natural Gas Fund (NYSEARCA:UNG) [for more natural gas news and analysis subscribe to our free newsletter].

Using UNG

Adding a hurricane to an already volatile fund could send UNG into a frenzy. Though it cannot be said with any certainty that NG prices will soar, the asset has historically risen when hurricanes impact the Gulf area. In 2005, NG prices jumped by about 18% in the days following Katrina; prices went on to soar even higher over the months that followed. With the potential for another short-term spike, UNG will be the perfect play for investors [see also Natural Gas, UNG On a 70% Rally].

Not only does the fund trade more than 10 million times each day, but it also has a highly active options market, allowing investors to make speculative bets with a lower risk. For this particular storm, options are the safest way to make an NG play, as UNG has offerings all the way through January of 2014, all of which are very liquid. Direct investment in UNG is another option but will simply require more monitoring as the fund is known to exhibit some hefty intraday movements.

Also note that if you are really looking for a make or break investment, the 3X pair of (NYSEARCA:UGAZ) and (NYSEARCA:DGAZ) will allow to potentially turn in some massive profits. Note that as 300% leveraged funds, it is not uncommon to watch these products move anywhere from 10% to 15% in a single day, especially in NG itself is volatile. Proceed with extreme caution with these two ETNs [see also 25 Ways To Invest In Natural Gas].

Using UNG will be the best way for you to make a play on Hurricane Isaac, but it will require due diligence. NG prices will be especially volatile after the storm comes through and predictability is not a luxury that this commodity offers. Keep a close eye on your positions and keep your finger on the trigger.

Written By Jared Cummans From CommodityHQ  Disclosure: No Positions.

CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.

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