On July 20, 2017, natural gas active futures’ implied volatility was 32.3%, which was 3% below their 15-day moving average.
Natural gas and its implied volatility generally move in opposite directions. For example, on March 3, 2016, natural gas futures closed at their 17-year low. On the same day, implied volatility touched 53.8%. Since then, natural gas prices rose 85.4% and implied volatility fell 40%. Vice versa, in the trailing week, natural gas futures rose 2.8% and implied volatility fell 2.4%.
Natural gas active futures could settle between $2.90 and $3.18 per million British thermal units in the next week. The price range was calculated from natural gas’s implied volatility of 32.3% and assuming natural gas prices are distributed normally. Given a standard deviation of 1, there’s a 68% probability prices will settle in this range next week.
So, if oil and natural gas rig counts fall in the week ended July 21, 2017, and weather forecast remains hot and humid, then natural gas (FCG)(BOIL) could reach the $3.2 mark in the next few trading sessions. If natural gas does rise to that level, it could be a positive development for ETFs such as the United States Natural Gas Fund LP (UNG), the Direxion Daily Natural Gas Related Bull ETF (GASL), and the Direxion Daily Natural Gas Related Bear 3X ETF (GASX).
Check out our natural gas coverage to understand the fundamental drivers that can move natural gas prices.