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Trading inefficient ETFs in practice – Quastic new series

16 May 2018,

Dear readers, I would like to thank you very much for the huge number of messages and emails I get from you every week. I’m really glad you like our series on how to deal with inefficient ETFs and you already apply these principles in your own trading. I am very happy about that.

Many of you are asking about the specific settings of current trades from our existing portfolio – what kind of strategy, expiration or what strike to use. These are definitely the right questions. That’s why I’ve decided that in parallel with following the description for trading inefficient ETFs, I will show you the real trades in practice.

I want to keep on educating and describing our strategies theoretically, to make sure you have a good foundation for future trading in practice. But at the same time, I am aware that the only theory can start to be boring one day or start to be counterproductive at some point. I remember how I have learned at the university statistic methods such as Poisson’s ratio and hypergeometric functions. Without ever using these models in practice to simplify our lives, we would forget these models very soon. That’s why I decided to provide you a deeper look under the hood of real trading examples. However, it will not be a selection of past trades that have been profitable and would push us to the level of trading gurus. I definitely do not want it and after all, trading is not about it. Internet is full of such “mentors” and we want to be different, so we just go with our skin to the market and show it even if there will be cases we will not succeed.

That is why we have prepared a new series of trading ETF for natural gas. As you already know from the previous articles, I consider gas together with the volatility ETFs as interesting because of the significant inefficiencies their ETFs possess. In my point of view, gas is more appropriate for beginners (compared to volatility ETFs, for example, there are no – at least not so often –  extreme movements in one or the other direction).

Here I will use the concepts you have already learned in the series about trading ineffective ETFs. We have created a trading account with Interactive Brokers for this purpose, which will be topped up with EUR 80,000. This is not a huge amount, but it is not a “negligible” amount that might indicate that this is an unimportant and overleveraged account, whose fate is indifferent to us. We will not use the margin portfolio, just the Reg-T margin, which is typical for 90% of individual accounts and which is safer from the margin point of view.

We will share the trading results every week, describe the logic of positions, share the trades that we have opened, closed and where we have GTC’s pending orders. I would like to point out that it is for purely educational reasons – these are trading tips and ideas made for educational reasons and cannot be considered as a trading advice.

This account will be dedicated to natural gas trading and we will use the shares and options for the following titles: UNG, BOIL, KOLD, UGAZ, DGAZ.

We will share with you the size of the margin used and the risk. We will also show you the fundamental signals we follow on gas, and why we decide whether we are rather long, neutral or rather short.

If you are interested in receiving a regular report where you can find all of the above, please leave your e-mail in the box below.

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