Some in Congress and elsewhere have blamed exchange traded funds — which let small investors like you and me bet on energy futures — for the rise in oil and gas prices last summer and early this year. It’s part of the reason the Commodity Futures Trading Commission is considering limits on trading (industry groups of proposing their own set of changes).
While the role of ETFs in those run-ups is stil being debated, it’s pretty clear that a monthly transaction from one of the funds led to a bunch of speculators getting a swift kick in the pants:
(Bloomberg) — Speculators trying to profit from the U.S. Natural Gas Fund’s roll of futures contracts got “slaughtered” and helped boost volatility as gas prices surged this week, said Adam Felesky, chief executive officer of BetaPro Management Inc.
Gas for October delivery rose 27 percent, through yesterday, on the New York Mercantile Exchange, forcing traders to cover bets that the gas fund’s sale of the contract would reduce the price, Felesky said. Volatility jumped to the highest level since Amaranth Advisors LLC collapsed in September 2006.
Speculators shorted October gas, anticipating that the $4 billion gas fund would push prices down when it began selling its October contracts on Sept. 14, said Felesky, whose C$1 billion ($937.1 million) Horizons BetaPro Nymex Natural Gas Bull Plus ETF rolled around the same time as the larger fund.
“The ‘smart money’ was positioned ahead of the roll,” Felesky said. “Everyone was on the same side of the trade. The roll was a non-event, and everybody got slaughtered. I think it’s the pros that got killed.”
What’s the moral of the story? Everybody hurts sometimes?