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Analyzing the Implied Volatilities of Crude Oil and Natural Gas

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Sep. 19 2016, Published 9:30 a.m. ET

Crude oil’s implied volatility

Crude oil’s (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) implied volatility was 37.2% on September 16, 2016. Its 15-day average implied volatility is 38.1%. That means that crude oil’s current implied volatility is 2.4% below its 15-day average.

Crude oil’s implied volatility rose to 56.3% on July 13, 2016. Since then, its implied volatility has fallen 33.9%. Over this period, US crude oil active futures contracts have fallen 2.5%. From September 9–16, 2016, US crude oil fell 6.1%. Its implied volatility rose 0.4% during that period.

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What about natural gas?

Natural gas’s (UNG) (DGAZ) (BOIL) (FCG) (UGAZ) (GASL) implied volatility was 37.2% on September 16, 2016. Its 15-day average implied volatility is 38.5%, which means that natural gas’s current level of implied volatility is 3.4% below its 15-day average.

Natural gas’s implied volatility rose to 58.7% on May 25, 2016. Since then, it has fallen 36.6%. Since May 25, natural gas has risen 48.9%. Last week, natural gas October futures rose 5.4%, while their implied volatility fell 1.5%.

Energy ETFs

This analysis could be important for natural gas–tracking ETFs such as the ProShares Ultra Bloomberg Natural Gas ETF (BOIL), the Direxion Daily Natural Gas Related Bear 3X ETF (GASX), the United States Natural Gas ETF (UNG), and the Direxion Daily Natural Gas Related Bull 3X ETF (GASL).

This analysis could also be important for crude oil–tracking funds such as the United States Oil ETF (USO) and the Credit Suisse X-Links WTI Crude ETN (OIIL).

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