Implied Volatility: Analyzing Crude Oil and Natural Gas



Crude oil’s implied volatility

Crude oil’s (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) implied volatility was 35.4% on October 28, 2016. Its 15-day average implied volatility is 31.6%. Crude oil’s current implied volatility is 11.9% above its 15-day average.

Crude oil’s implied volatility rose to 56.3% on July 13, 2016. Since then, its implied volatility has fallen 37.2%. Over this period, US crude oil active futures contracts have risen 8.8%.

From October 21 to October 28, crude oil’s implied volatility rose 15.7%. During this period, West Texas Intermediate crude oil fell 4.2%—as we discussed in Part 1 of this series.

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What about natural gas?

For natural gas (UNG) (DGAZ) (BOIL) (FCG) (UGAZ) (GASL), its implied volatility was 43.9% on October 28, 2016. Its 15-day average implied volatility is 42.7%. Its current implied volatility is 2.9% above its 15-day average.

Its implied volatility rose to 63.4% on October 24, 2016. Since then, it has fallen 30.7%. Since October 24, natural gas has fallen 6.5%. Last week, natural gas futures fell 7.6%—as we discussed in Part 3 of this series—while its implied volatility fell 3.3%.

Energy ETFs

The 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).

It 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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