United States Gasoline Fund (UGA ETF) is the only Gasoline commodity exchange traded fund. UGA invests in gasoline futures (RBOB contracts) hence performance of the ETF mirrors market expectation of future gasoline prices.
Each gasoline future contract is worth 42,000 gallons. Commodity ETFs is the best option for small investors that want exposure to commodities like natural gas, metals or gold . This is because ETFs like UGA allow ease of managing overall position in the portfolio relative to future contracts which are due to its fixed unit per contract is not appropriate for most small portfolios.
UGA ETF can be used primarily in 3 ways.
1) Take a direction position on Gasoline prices
2) Hedged gasoline exposure. For example if you think gas prices will go higher and hedge current gasoline exposure on a rolling basis. Another advantage of gasoline ETF is you do not have to manage the quarterly rolling forward of future contract as the front month contract expires.
3) Spread trade to bet on the gasoline crack spread. Gasoline prices are priced based crude oil and cost refining which is commonly known as the crack spread. Most common crack spread quote is 3:2:1 where 3 units of crude oil makes 2 units of gasoline and 1 unit of kerosine. Any deviation of the above fixed ratio creates arbitrage and profit opportunities.