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 (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 UGAZ and 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.
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Disclosure: No positions at time of writing.
[...] Tropical Storm Isaac took over commodity headlines today as many investors remained on edge as the storm continued its path towards the U.S. Gulf Coast. As traders weighed the impact of the storm on the energy sector, gasoline futures surged to a five-month high, while oil fell slightly lower and natural gas tumbled lower. [...]
[...] Investors will keep their focus on the homefront later today as August consumer confidence data comes out. As such, our ETF to watch for the day is the State Street Consumer Discretionary Select Sector SPDR (XLY, A) which could see an increase in trading activity following the latest confidence index release. Analysts are expecting for consumer confidence to come in at 66, marking only a modest improvement from last month’s figure of 65.9 [see also Will Hurricane Isaac Send UNG Soaring?]. [...]
[...] Investors will keep their focus on the homefront later today as August consumer confidence data comes out. As such, our ETF to watch for the day is the State Street Consumer Discretionary Select Sector SPDR (XLY, A) which could see an increase in trading activity following the latest confidence index release. Analysts are expecting for consumer confidence to come in at 66, marking only a modest improvement from last month’s figure of 65.9 [see also Will Hurricane Isaac Send UNG Soaring?]. [...]
[...] of offshore drilling platforms and refineries. The area can be greatly impacted by the U.S. hurricane season, halting production and leading to a short-term rise in oil and gas prices. Production was halted [...]