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Investors Betting on Gas Prices to Drop Triple Shares of ETN

Jan. 24 (Bloomberg) -- Outstanding shares of an exchange-traded note that bets on falling natural gas prices have more than tripled in the past two weeks as investors expect the rise in the fuel’s cost to be short-lived.

The number of shares of the VelocityShares 3x Inverse Natural Gas ETN climbed to 27.8 million yesterday from 8.6 million on Jan. 10, according to data compiled by Bloomberg. That makes it the sixth-largest U.S. exchange-traded note by outstanding shares.

Natural gas futures jumped to the highest in more than three years in New York on forecasts for sustained below-normal temperatures through at least the end of the month.

“Many traders are of the view that the spike in natural gas prices will be short-lived and want to position themselves for a decline,” said Nick Cherney, chief investment officer at VelocityShares LLC.

The ETN’s daily returns track roughly three times the inverse of price movements of natural gas futures, so for every 1 percent the futures fall, the securities gain about 3 percent, according to a prospectus filed with the U.S. Securities and Exchange Commission. The futures currently being followed expire in March, according to the VelocityShares website.

Since Jan. 10, the value of the ETNs has dropped 52 percent to $4.76 at 4:15 p.m. in New York. The March price for natural gas rose 24 percent to $4.998 during that period.

Cold weather for the mid-Atlantic and Northeast regions is expected to last through early February.

Temperatures for the U.S. east of the Rocky Mountain region are expected to be below average in February, said Matthew Rosencrans, a meteorologist at the Climate Prediction Center in College Park, Maryland, which is part of the National Oceanic and Atmospheric Administration.

Credit Suisse Group AG issues the ETNs, which have a market capitalization of $132.2 million.

To contact the reporter on this story: Kevin Dugan in New York at kdugan4@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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