Unloved and Underrated, AEP Is a Long-Term Opportunity [View article]
Twee
I would suggest you reread the article. The only mention of a 13+ P/E I had was taking a 15% haircut (to outline a possible downside scenario based on the risks mentioned, not that this is the most probable outcome for 2011) to 2011 EPS estimates for an EPS of 2.61.
Still even with that downside scenario the P/E is being priced underneath what the industrial average is.
The P/E of AEP right now is @ 11.24 for 2011 EPS consensus.
Please recheck and get your fact correct before you launch a comment that degrades the stock mentioned and offer up a better alternative. Oh and D right now fetches a 14 P/E on 2011 consensus estimates versus your quoted 9.55.
Unloved and Underrated, AEP Is a Long-Term Opportunity [View article]
John
Thats why I mentioned some of the risk but didnt go into the details.
At the risk of sounding naive, whats the chance that the government can really stop the use of coal for power generation? They cant. It has two options, increase costs and have angry voters, or try to very slowly curb emissions and develop new technologies.
Neither of these are likely options in 2011 to impact AEP price.
Also coal is trading down quite nicely recently so AEP "costs" could be lower in the quarterly earnings ahead.
Unloved and Underrated, AEP Is a Long-Term Opportunity [View article]
Rick
The split risk reversal isnt a name in option books and was something I just came up with as it is the same concept of the risk reversal just split amongst different strikes (risk reversal is short put and long call same month same strike).
Your correct on the choices of the covered call between upside versus "relatively" safe. What would be nice is if the $37.50 would be available. Then you would get more net credit but alas some upside.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
User
Yeah pretty much correct.
I am not saying UNG cant go higher, but natural gas is likely to be "range bound" for a few years. I am not "long-term bearish" at all on natural gas prices. But the problem is, you simply can not get a long-term outlook via any of these commodity ETF's.
When I am ready to be a long-term bull on gas prices I will be buying a long dated futures contract and be willing to pay the associated contango.
Probably as a hedge I would short UNG, so long futures and short some ratio of UNG to those long futures. Sort of like hedging delta's in option trading.
I am also not saying if natural gas prices go up more than contango that UNG would lose money, UNG would gain money if the price appreciation is more than the net contango over the same period. Sorta like the example I gave up there, 25% higher natural gas prices yet UNG would only be up 3%, due to contango.
So you do have a price gain in that scenario but you underperformed the index by 22%. Not good in my book.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
User
Thanks.
Can it ever truly reach "zero"? Technically no. As that would require the gas contracts they hold to go to "zero" which is "possible" but not likely.
However UNG will constantly have less and less contracts they own but have the same number of outstanding shares (assumption there are no share creation or redemptions or reverse stock splits) until eventually they will own 1 contract and would not have enough money to roll into the next contract and thus there is "money left" from the residual value of the one contract they would be obligated to sell (as they cant take physical delivery) but be unable to buy the next months (as they dont have enough cash to due so). Doubtful it would ever reach this point but in a mathematical sense it can happen if left long enough untouched.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
David
UNG is not unique in its flawed structure. Any commodity based ETF that "holds futures contracts" and then "rolls" their contracts at all would normally have to encounter contango or backwardation. Backwardation is the opposite of contango but I have a special opinion on backwardation.
I am not ultra familiar with UCO but I do believe it is a 2x leveraged oil futures based commodity ETF thereby it has the same structural issues UNG does. But in short, yes UCO has the same type of tracking issues UNG does.
A simple point is, especially in natural gas (as it has mini contracts versus the full size), why trade a commodity based ETF versus trading the futures outright?
Things get really clear for an investor if they "really" want to trade a commodity if they go to the futures. All of the sudden they have to pick a month to match their view, (say F12 is January 2012) and they go and find out that alas there is no way to "buy gas today at $3.89ish J11" and hold it until next winter. They have to buy next winters gas say the F12 @ $4.75. Considering we peaked at $4.87 this winter and the "said" investor was merely thinking that $3.89ish gas was cheap, is next winters gas really that cheap considering it costs $4.75?
Thats the pitfall of these ETF's, people think they are getting a viewpoint or an ability to gain off "future price appreciation" when in fact prices are already much higher in the future and they dont get to play in the sandbox like they think they do. And just like a baby that doesnt get its toy, it usually leads to some wailing and tears.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
SLC
Very rude post btw.
I wasnt advocating a short position or a long position merely the structural flaws. No where did I give an opinion or probability view of natural gas prices which I do have but will be part of another article.
Can natural gas prices go lower, oh yeah they can and likely will from $3.963 on the K11 before K11's expiration. But can K11 trade up, yeah it can. Never gave a probability view of where I think prices go.
But what you apparently lack is a clear understanding of how you can trade natural gas. You cant "buy and hold" K11 at $3.963. It expires and you cant take physical delivery. Thus your investment in natural gas ends when K11 ends trading and what it expires at is undeterminable at this point.
You can argue all you want that F12 is a buy at $4.75. But you have to buy F12 @ $4.75 to get that view that gas prices next winter will be above $4.75 and you will make a profit.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
Ron
Sorry but they originally stated in their prospectus (before the revised it) as a vehicle to track the natural gas futures. They never mentioned the period of time it was supposed to track nor mentioned the very clear risks the strategy imposes. Thus its a failure on their original model.
I think as the prospectus currently reads is how it should have been, it doesnt spell out contango but it does say its only goal is to track natural gas futures daily.
I think the reverse split is the death knell in so much as its going to be abundantly clear that this model does not work and basically is a transfer of wealth from retail investors to natural gas producers/storage operators and the other physical players that can take advantage of the contango in the investment market.
Teucrium Natural Gas Fund Offers 4-Month Futures Strategy - At a Cost [View article]
Ron,
If they do truly focus constantly on those four months will more than likely face a relatively constant contango just like UNL. While the month to month future contracts vary each day, its almost a guaranteed event that say the J11 is going to be in a contango situation to J12 (April 2011 NG Futures compared to April 2012 NG Futures) well over 99% of the time. A few times this may not occur would be in the tremendous supply disruption scenario that impacts only the near term contract at the time but does not materially impact the rest of the curve. A hurricane event could cause this. However those events normally should be traded in a contranian fashion.
Either way, another joke of an ETF that is getting investors sucked into things they do not understand. As I have wrote before, playing natural gas futures are safer than these natural gas ETFs if you mitigate/offset the leverage risk in the futures which isnt hard at all.
Either way, these type of ETF's are a great proxy for a long-term short / bearish thesis type of trades on the underlying commodity.
Thanks, to further the thought process. Think about this.
If the producers are dying to sell gas in the $5-7 range as they have hedged their production before in the past, and from what I have read production for 2011 (across a sampling I could agree with but the producers I like are more highly hedged than the sampling) is about 40% of production is hedged in the high $5's to $6's for all of 2011.
I dont try to predict out beyond 2011 into 2012 2013 etc. Its impossible and implausible to be highly accurate.
However think about this, if the producers could sell the remainder (60%) of their 2011 production in the $5-6 range (and from my inklings and readings they would love too) does that really bode/speak to prices going a whole lot higher?
I mean maybe the producers can be wrong, but they were the ones hedging their production constantly from 2008 and on for "multiple" years at a time. Also XOM didnt buy XTO because they wanted to buy Nat Gas in the $5, 6, 7's etc. They wanted to buy gas in the $2-4 cost range (shale field dependent) and sell it for $5-7.
So if a retail "speculator/investor/t... (paying market price) at $5+ to get a bullish view on gas throughout 2011 by buying a NG ETF or NG Futures (implied contango provided the market as of live today), does the retail (paying market price) they really have a competitive advantage? Or do the producers have the advantage of selling it at $5 to the retail people.
I'd rather side and be bullish with the producers in producing NG at a cost level (call it $4 on the high side blending all production costs for a mid-large producer) than pay a retail price. Kind of like the gold rush, who got rich a whole lot more? An individual miner (retail speculator) or the store selling the equipment (NG producer).
I am presenting the scenario the market is presenting to me today as I typed it as it existed at 1:44 p.m. EST.
Your the one who doesnt clearly understand what your dealing with.
To get UNG to $8, would take G11 trading at $5.86. If UNG were to roll from G11 (as it has to roll but it rolls monthly) to F12 (it wont happen just an excercise for you) then it would take the F12 trading at $7.19.
G11 is trading at $4.10 and that is what UNG owns and is trading at $5.59. F12 is trading at an ask of $5.026, if UNG were to roll from G11 to F12, it then owns $5.026 NG and UNG would still be priced at $5.59.
Will UNG roll from G11 to F12, no it wont, but since you were talking about prices at the end of 2011, you need to talk about the roll costs that the market is pricing in right now as we type for holding through 2011. Can it change, yeah it will and can, but will it get worse or better?
I call it how I see it. When someone talks about prices let alone wants to publish an article about prices, then they should be coherent to talk about prices.
You sir didnt make it clear in the article and you are trying to back out of statements that you dont understand when confronted by people with more knowledge.
So now you are making a price call, it will "definitely rise" in the next 2-5 years. Incredibly stupid statement to make. With that statement, you are now guaranteeing that Natural Gas will trade for $5+ in Dec 2011, $6+ in Dec 2012 and beyond. As the only way to make a price call on "natural gas prices rising" is to make a price call on that associated futures contract.
So many retail investors do not understand this. In order to be bullish about winter 11-12 gas, you need to buy the F12. It trades for an ask of $5. Thereby for you to make any money on the trade, F12 would have to trade for $5+, for you to carry your bullish view to next winter, you have to have F12 be above $5 to make any money. Yeah maybe prices will be $4.50 next December, you would actually think you would be correct (because you dont really trade natural gas or know how it functions in the market place) but in reality anyone trading it would be losing 10%. I would quote the F13 and F14, but not nary a contract has traded.
Maybe that should indicate something to you, that not a single professional in the entire gas industry is willing to buy F13 or F14 today, there isnt even an ask price.
As said, you can be bullish about the prospects about increased demand usage etc etc, you shouldnt have mentioned prices because you dont know how the product even trades that your being bullish about.
You were talking in terms of being bullish on natural gas prices. You know the end of the article that the two year slump should cease and natural gas could rebound. So you are talking about prices. Dont shy away from it.
If you wanted to talk about the increase in demand usage of natural gas then dont talk about prices period. You mentioned prices, thereby your making the statement about natural gas as an investment.
We have increased both production and demand for natural gas as a fuel in the past two years with price declines. It has just been that production of natural gas has vastly outweighed the demand side of natural gas.
If you wanted to speak about how to lessen foreign oil dependence, then you should have spoke of making better natural gas vehicles (that really represent pretty much zero natural gas demand) as right now, the best NG fueled vehicle is only about 58% as efficient as a gasoline engine. By efficient I mean tank size / total mileage.
Your article mixes up ideas and your backing out of your price calls. Either learn how to make price calls very clear, or dont talk about prices period. You mention prices, your going to get readers thinking about prices.
Unloved and Underrated, AEP Is a Long-Term Opportunity [View article]
I would suggest you reread the article. The only mention of a 13+ P/E I had was taking a 15% haircut (to outline a possible downside scenario based on the risks mentioned, not that this is the most probable outcome for 2011) to 2011 EPS estimates for an EPS of 2.61.
Still even with that downside scenario the P/E is being priced underneath what the industrial average is.
The P/E of AEP right now is @ 11.24 for 2011 EPS consensus.
Please recheck and get your fact correct before you launch a comment that degrades the stock mentioned and offer up a better alternative. Oh and D right now fetches a 14 P/E on 2011 consensus estimates versus your quoted 9.55.
Unloved and Underrated, AEP Is a Long-Term Opportunity [View article]
Thats why I mentioned some of the risk but didnt go into the details.
At the risk of sounding naive, whats the chance that the government can really stop the use of coal for power generation? They cant. It has two options, increase costs and have angry voters, or try to very slowly curb emissions and develop new technologies.
Neither of these are likely options in 2011 to impact AEP price.
Also coal is trading down quite nicely recently so AEP "costs" could be lower in the quarterly earnings ahead.
Unloved and Underrated, AEP Is a Long-Term Opportunity [View article]
The split risk reversal isnt a name in option books and was something I just came up with as it is the same concept of the risk reversal just split amongst different strikes (risk reversal is short put and long call same month same strike).
Your correct on the choices of the covered call between upside versus "relatively" safe. What would be nice is if the $37.50 would be available. Then you would get more net credit but alas some upside.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
Yeah pretty much correct.
I am not saying UNG cant go higher, but natural gas is likely to be "range bound" for a few years. I am not "long-term bearish" at all on natural gas prices. But the problem is, you simply can not get a long-term outlook via any of these commodity ETF's.
When I am ready to be a long-term bull on gas prices I will be buying a long dated futures contract and be willing to pay the associated contango.
Probably as a hedge I would short UNG, so long futures and short some ratio of UNG to those long futures. Sort of like hedging delta's in option trading.
I am also not saying if natural gas prices go up more than contango that UNG would lose money, UNG would gain money if the price appreciation is more than the net contango over the same period. Sorta like the example I gave up there, 25% higher natural gas prices yet UNG would only be up 3%, due to contango.
So you do have a price gain in that scenario but you underperformed the index by 22%. Not good in my book.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
Thanks.
Can it ever truly reach "zero"? Technically no. As that would require the gas contracts they hold to go to "zero" which is "possible" but not likely.
However UNG will constantly have less and less contracts they own but have the same number of outstanding shares (assumption there are no share creation or redemptions or reverse stock splits) until eventually they will own 1 contract and would not have enough money to roll into the next contract and thus there is "money left" from the residual value of the one contract they would be obligated to sell (as they cant take physical delivery) but be unable to buy the next months (as they dont have enough cash to due so). Doubtful it would ever reach this point but in a mathematical sense it can happen if left long enough untouched.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
UNG is not unique in its flawed structure. Any commodity based ETF that "holds futures contracts" and then "rolls" their contracts at all would normally have to encounter contango or backwardation. Backwardation is the opposite of contango but I have a special opinion on backwardation.
I am not ultra familiar with UCO but I do believe it is a 2x leveraged oil futures based commodity ETF thereby it has the same structural issues UNG does. But in short, yes UCO has the same type of tracking issues UNG does.
A simple point is, especially in natural gas (as it has mini contracts versus the full size), why trade a commodity based ETF versus trading the futures outright?
Things get really clear for an investor if they "really" want to trade a commodity if they go to the futures. All of the sudden they have to pick a month to match their view, (say F12 is January 2012) and they go and find out that alas there is no way to "buy gas today at $3.89ish J11" and hold it until next winter. They have to buy next winters gas say the F12 @ $4.75. Considering we peaked at $4.87 this winter and the "said" investor was merely thinking that $3.89ish gas was cheap, is next winters gas really that cheap considering it costs $4.75?
Thats the pitfall of these ETF's, people think they are getting a viewpoint or an ability to gain off "future price appreciation" when in fact prices are already much higher in the future and they dont get to play in the sandbox like they think they do. And just like a baby that doesnt get its toy, it usually leads to some wailing and tears.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
Very rude post btw.
I wasnt advocating a short position or a long position merely the structural flaws. No where did I give an opinion or probability view of natural gas prices which I do have but will be part of another article.
Can natural gas prices go lower, oh yeah they can and likely will from $3.963 on the K11 before K11's expiration. But can K11 trade up, yeah it can. Never gave a probability view of where I think prices go.
But what you apparently lack is a clear understanding of how you can trade natural gas. You cant "buy and hold" K11 at $3.963. It expires and you cant take physical delivery. Thus your investment in natural gas ends when K11 ends trading and what it expires at is undeterminable at this point.
You can argue all you want that F12 is a buy at $4.75. But you have to buy F12 @ $4.75 to get that view that gas prices next winter will be above $4.75 and you will make a profit.
UNG's Death Knell Has Been Sounded via the 8K Filing [View article]
Sorry but they originally stated in their prospectus (before the revised it) as a vehicle to track the natural gas futures. They never mentioned the period of time it was supposed to track nor mentioned the very clear risks the strategy imposes. Thus its a failure on their original model.
I think as the prospectus currently reads is how it should have been, it doesnt spell out contango but it does say its only goal is to track natural gas futures daily.
I think the reverse split is the death knell in so much as its going to be abundantly clear that this model does not work and basically is a transfer of wealth from retail investors to natural gas producers/storage operators and the other physical players that can take advantage of the contango in the investment market.
Teucrium Natural Gas Fund Offers 4-Month Futures Strategy - At a Cost [View article]
If they do truly focus constantly on those four months will more than likely face a relatively constant contango just like UNL. While the month to month future contracts vary each day, its almost a guaranteed event that say the J11 is going to be in a contango situation to J12 (April 2011 NG Futures compared to April 2012 NG Futures) well over 99% of the time. A few times this may not occur would be in the tremendous supply disruption scenario that impacts only the near term contract at the time but does not materially impact the rest of the curve. A hurricane event could cause this. However those events normally should be traded in a contranian fashion.
Either way, another joke of an ETF that is getting investors sucked into things they do not understand. As I have wrote before, playing natural gas futures are safer than these natural gas ETFs if you mitigate/offset the leverage risk in the futures which isnt hard at all.
Either way, these type of ETF's are a great proxy for a long-term short / bearish thesis type of trades on the underlying commodity.
Why I'm Bullish on Natural Gas [View article]
Thanks, to further the thought process. Think about this.
If the producers are dying to sell gas in the $5-7 range as they have hedged their production before in the past, and from what I have read production for 2011 (across a sampling I could agree with but the producers I like are more highly hedged than the sampling) is about 40% of production is hedged in the high $5's to $6's for all of 2011.
I dont try to predict out beyond 2011 into 2012 2013 etc. Its impossible and implausible to be highly accurate.
However think about this, if the producers could sell the remainder (60%) of their 2011 production in the $5-6 range (and from my inklings and readings they would love too) does that really bode/speak to prices going a whole lot higher?
I mean maybe the producers can be wrong, but they were the ones hedging their production constantly from 2008 and on for "multiple" years at a time. Also XOM didnt buy XTO because they wanted to buy Nat Gas in the $5, 6, 7's etc. They wanted to buy gas in the $2-4 cost range (shale field dependent) and sell it for $5-7.
So if a retail "speculator/investor/t... (paying market price) at $5+ to get a bullish view on gas throughout 2011 by buying a NG ETF or NG Futures (implied contango provided the market as of live today), does the retail (paying market price) they really have a competitive advantage? Or do the producers have the advantage of selling it at $5 to the retail people.
I'd rather side and be bullish with the producers in producing NG at a cost level (call it $4 on the high side blending all production costs for a mid-large producer) than pay a retail price. Kind of like the gold rush, who got rich a whole lot more? An individual miner (retail speculator) or the store selling the equipment (NG producer).
Why I'm Bullish on Natural Gas [View article]
I am not presenting the worst case scenario.
I am presenting the scenario the market is presenting to me today as I typed it as it existed at 1:44 p.m. EST.
Your the one who doesnt clearly understand what your dealing with.
To get UNG to $8, would take G11 trading at $5.86. If UNG were to roll from G11 (as it has to roll but it rolls monthly) to F12 (it wont happen just an excercise for you) then it would take the F12 trading at $7.19.
G11 is trading at $4.10 and that is what UNG owns and is trading at $5.59. F12 is trading at an ask of $5.026, if UNG were to roll from G11 to F12, it then owns $5.026 NG and UNG would still be priced at $5.59.
Will UNG roll from G11 to F12, no it wont, but since you were talking about prices at the end of 2011, you need to talk about the roll costs that the market is pricing in right now as we type for holding through 2011. Can it change, yeah it will and can, but will it get worse or better?
Why I'm Bullish on Natural Gas [View article]
Are you calculating in the contango effects of UNG?
Because right now, to get $8 on UNG in Dec 2011, F12 will have to trade at $7.27.
That is a very very very very unlikely scenario to occur throughout 2011.
Why I'm Bullish on Natural Gas [View article]
I call it how I see it. When someone talks about prices let alone wants to publish an article about prices, then they should be coherent to talk about prices.
Why I'm Bullish on Natural Gas [View article]
You sir didnt make it clear in the article and you are trying to back out of statements that you dont understand when confronted by people with more knowledge.
So now you are making a price call, it will "definitely rise" in the next 2-5 years. Incredibly stupid statement to make. With that statement, you are now guaranteeing that Natural Gas will trade for $5+ in Dec 2011, $6+ in Dec 2012 and beyond. As the only way to make a price call on "natural gas prices rising" is to make a price call on that associated futures contract.
So many retail investors do not understand this. In order to be bullish about winter 11-12 gas, you need to buy the F12. It trades for an ask of $5. Thereby for you to make any money on the trade, F12 would have to trade for $5+, for you to carry your bullish view to next winter, you have to have F12 be above $5 to make any money. Yeah maybe prices will be $4.50 next December, you would actually think you would be correct (because you dont really trade natural gas or know how it functions in the market place) but in reality anyone trading it would be losing 10%. I would quote the F13 and F14, but not nary a contract has traded.
Maybe that should indicate something to you, that not a single professional in the entire gas industry is willing to buy F13 or F14 today, there isnt even an ask price.
As said, you can be bullish about the prospects about increased demand usage etc etc, you shouldnt have mentioned prices because you dont know how the product even trades that your being bullish about.
Why I'm Bullish on Natural Gas [View article]
You were talking in terms of being bullish on natural gas prices. You know the end of the article that the two year slump should cease and natural gas could rebound. So you are talking about prices. Dont shy away from it.
If you wanted to talk about the increase in demand usage of natural gas then dont talk about prices period. You mentioned prices, thereby your making the statement about natural gas as an investment.
We have increased both production and demand for natural gas as a fuel in the past two years with price declines. It has just been that production of natural gas has vastly outweighed the demand side of natural gas.
If you wanted to speak about how to lessen foreign oil dependence, then you should have spoke of making better natural gas vehicles (that really represent pretty much zero natural gas demand) as right now, the best NG fueled vehicle is only about 58% as efficient as a gasoline engine. By efficient I mean tank size / total mileage.
Your article mixes up ideas and your backing out of your price calls. Either learn how to make price calls very clear, or dont talk about prices period. You mention prices, your going to get readers thinking about prices.