Official Forum for the Ten Greedy Men trading group

You are not connected. Please login or register

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

Go down  Message [Page 1 of 1]

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.

View user profile

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum