Analyzing Energy Commodities’ Implied Volatilities



Crude oil’s implied volatility

Crude oil’s (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) implied volatility was 27.7% on December 16, 2016. Its 15-day average implied volatility is 35.6%. Crude oil’s current implied volatility is 22.3% below its 15-day average.

Crude oil’s implied volatility rose to 47.9% on November 11, 2016. Since then, its implied volatility fell 42.2%. During this period, US crude oil active futures contracts rose 15.6%. From December 9 to December 16, crude oil’s implied volatility fell 13.2%. During this period, West Texas Intermediate crude oil rose 1%, as we discussed in Part 1 of this series.

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What about natural gas?

Natural gas’s (UNG) (DGAZ) (BOIL) (FCG) (UGAZ) (GASL) implied volatility was 47.3% on December 16, 2016. Its 15-day average implied volatility is 50.2%. Its current implied volatility is 5.8% below its 15-day average.

Its implied volatility rose to 56.2% on November 14, 2016. Since then, it has fallen 15.9%. Since November 14, natural gas has risen 24.2%. Last week, natural gas futures fell 8.8% due to moderate weather forecasts. Its implied volatility fell 8.1%.

Energy ETFs

The previous 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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