Shares of the Velocity Shares Daily 2x VIX Short Term ETN (TVIX) have plunged nearly 60% over the past two trading sessions. The cause of the sell-off had nothing to do with movement in the VIX. Rather, TVIX has plunged as investors have realized the premium TVIX had been trading at to NAV was absurd. The iPath Dow Jones- UBS Natural Gas Total Return Sub-Index ETN (GAZ) is setting up for a similar type of decline to the one experienced by TVIX over the past few days.
GAZ currently has a NAV of $2.44 per share. This is well below the current price of GAZ, $4.60. GAZ shares could fall by nearly 50% and be fairly valued relative to NAV. Because of this, there is absolutely no reason for investors to own GAZ. If you are looking for a natural gas ETF, the United States Natural Gas Fund LP (UNG) is the better play. UNG is a terrible long-term investment because of the contango as discussed here. However, unlike GAZ, UNG is not trading at a premium to NAV. That being said, the best way to play natural gas is through the producers such as Chesapeake Energy Corp (CHK) or Southwestern Energy Company (SWN).
In summary, investors should sell GAZ before it is too late and GAZ experiences a move similar to the one TVIX has experienced over the past few trading sessions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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