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Author: persistentone Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: OT: Went Long 100sh of UNG Date: 3/22/2012 6:23 PM
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UNG is widely considered a sucker's play, because you are buying into constant time decay on futures options. UNG does NOT BUY NATURAL GAS. They buy futures. You can easily see what a bad investment this is by holding side by side a time graph of natural gas pricing using $NATGAS and UNG. NATGAS was in a trading range from April 2009 until recently when it broke lower. UNG by contrast looks like an airplane spiraling into the ground during this entire time period. All UNG is good at doing is losing your money.

But wait, it only gets better. UNG isn't a stock at all. It's a limited partnership. That means you will get a K-1 for tax purposes, and for a small investment your accountant fee to handle that paper will exceed any gain on the investment.

You will be able to pass through the ordinary income loss they show on that to your other ordinary income. But just dealing with that paper and hassle for a small trade makes no sense.

It might be more interesting to short UNG when gas is at a high price, but what is the tax implication of being short something that generates K-1 ordinary losses? Anyone?

If you want a trade on natural gas, and you are conservative, go for a quality survivor like Encana (ECA.TO or ECA). They are shutting down dry gas production and focusing on liquids. They are so asset rich and so damned smart about how they produce there is no question they will survive this crisis and thrive. You will get a 3% to 4% dividend.
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