Goodbye UGAZ And DGAZ: It's Been An Interesting Ride

Summary

• Credit Suisse has started the process of delisting UGAZ and DGAZ and investors need to find alternatives to maintain exposure.
• Gas fundamentals are still bullish due to declining production and recovering demand.
• UNG and UNL represent solid alternatives to UGAZ and DGAZ, albeit at reduced leverage.

Over the past 24 hours, Credit Suisse has announced that it will be delisting several leveraged ETNs, among which is the VelocityShares 3x Long Natural Gas ETN (UGAZ) and its inverse the VelocityShares 3x Inverse Natural Gas ETN (DGAZ). In this piece, I will walk through the delisting as well as give a view on natural gas fundamentals. Ultimately, I am bullish natural gas and believe that now is a great time to buy the commodity and I will share which ETPs I believe will be good plays to capture the move.

The Delisting

If you haven't had a chance to read the press release above, I'd check it out. Essentially, it appears that Credit Suisse has decided to step back from leveraged products on volatile commodities. UGAZ and DGAZ trade on NYSE ARCA which means that the delisting date at this time is July 10th - or about 2 weeks from now.

Investors need to know a few things about how this delisting will occur. The first of which is that individuals should start to expect diminished trading volume in the instrument heading into the delisting date. What this functionally means is that if you are actively trading UGAZ or DGAZ, expect to see the bid-ask spread narrow as well as the depth of volume available to fill orders to diminish. At this point, UGAZ/DGAZ are sinking ships and active traders and investors are headed for the exits. For this reason, I suggest that any remaining positions in the ETNs be exited at this time to avoid the progressive loss of liquidity we can expect going forward.

There is a big question mark in the air here and that is "Why?" Why has Credit Suisse decided to exit from the leveraged ETN business by closing out several very popular products. One can

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.