KOLD ETF

The ProShares Ultra Bloomberg Natural Gas ETF (BOIL) crashed by almost 9% on Monday as the natural gas prices slipped. At the same time, the ProShares UltraShort Bloomberg Natural Gas ETF (KOLD) jumped by almost 9%.

U.S. NYMEX natural gas futures experienced an +85% decline from August 2022 to March 2024, leading to an overabundance of short positions. Elevated open interest likely caused a rally in natural gas prices, followed by a decline as speculative positions were closed. Factors such as the upcoming cooling season, U.S. energy policy, and the war in Europe could lead to increased volatility in the natural gas futures market.

ProShares UltraShort Bloomberg Natural Gas ETF is an inverse fund that provides exposure to declining natural gas prices. The bear case for natural gas includes factors such as economic downturns, renewable energy shift, and oversupply issues. The KOLD ETF carries potential rewards of profiting from falling natural gas prices, but also risks such as volatility decay and thus is not suitable for long-term holding.

The ProShares UltraShort Bloomberg Natural Gas ETF (KOLD) has returned 122% since October 31st due to seasonal weakness in natural gas. KOLD is only suitable for short-term trading as it suffers from extreme 'volatility decay' and has poor long-term returns. Although natural gas prices have plunged due to warm weather, rising geopolitical tensions could be a wildcard that supports prices in the near term.

The ProShares UltraShort Bloomberg Natural Gas ETF aims to provide investors with -2x daily performance of the Bloomberg Natural Gas Subindex. The fund has taken advantage of the fall in natural gas prices in the U.S. this year, with a 70% gain. KOLD is a highly speculative tool with a 122% annualized volatility, and it is not recommended for buy and hold strategies.

The ProShares UltraShort Bloomberg Natural Gas ETF is not a long-term investment due to volatility decay and poor long-term performance. Fundamentals and seasonality support higher natural gas prices, so shorting natural gas futures may not be a good bet at this time. Speculators interested in the KOLD ETF should wait until the end of the year when natural gas prices typically decline for a potential trade.

Natural gas prices have experienced significant volatility, with US NYMEX natural gas futures reaching a high of over $10 per MMBtu in August 2022 before falling 80.6% to a low of $1.946 per MMBtu in April 2023. Bullish factors supporting natural gas prices include ongoing tensions between Russia and the US/Europe, reduced production due to low prices, and potential increased demand during the summer cooling season. Bearish factors include a continued downward trend in natural gas futures markets, a glut of European natural gas, and potential economic weakness limiting demand for energy commodities.

Wall Street was upbeat last week with the key equity gauges gaining in the range of 1.8% to 3.3%.