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The futility of buying both UGAZ and DGAZ at the same time.

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One of the posters on stocktwits indicated that a good strategy is to buy UGAZ and DGAZ at the same time. I wanted to post an example of some basic math on why this does not work and leave the floor open for other examples.

Here is one example:

Possible scenarios with 2/3 UGAZ and 1/3 DGAZ:

1. Say $20,000 worth of UGAZ, $10,000 worth of DGAZ.
Note that by doing this, you tie up $30,000 of your non-marginable funds (since UGAZ/DGAZ have 100% equity requirement with most brokerages). Note that this does not even include decays (assumes a day trade).
Natural gas goes down say 10%: UGAZ loses 30% = $-6,000, dgaz gains 30% = +$3000 You use the $3000 dgaz gains to buy more ugaz: $15 extra commissions (bought dgaz, sold dgaz, rebought ugaz, 3 $5 transactions). Result -6000+3000-15= -$3015.

2. Natural gas goes up 10%: Ugaz gains $6000, dgaz loses $3000, another $15 Commissions: $6000-3000-15 = +$2985.

3. Natural gas gains nothing: tied up $30,000, -$15 commissions.

So between all 3 scenarios, your best outcome is to have $30,000 turn into about $33,000. Your worst outcome is to turn $30,000 into about $27,000.

Alternatively you could do the same thing by buying only $10,000 worth of either for the same risks and less commissions and still have $20,000 of safe cash in the tank (or invested elsewhere for other opportunities) for buying either at a lower price.

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