Implied volatility

On August 3, 2017, natural gas’s implied volatility was 30%—5.1% below its 15-day moving average.

Natural Gas Could Fall below $2.7 Next Week

Usually, natural gas (UNG) (UGAZ) prices and their implied volatility move in opposite directions. For example, when natural gas futures fell to their 17-year low in March 2016, their implied volatility rose to 53.8%. Since then, natural gas prices have risen 70.7%, while the implied volatility fell 44.2%. In the trailing week, natural gas prices fell 5.6% and their implied volatility rose 1.4%.

Price range forecast

With a 68% probability, natural gas active futures could close between $2.68 and 2.92 per MMBtu next week.

The calculation is based on the following assumptions:

  • implied volatility at 27%
  • prices are normally distributed
  • standard deviation of 1

OPEC’s meeting on August 7–8, 2017 could impact natural gas prices. If OPEC pushes for a higher compliance rate among the group members, increased crude oil and natural gas production in the US could pull natural gas prices lower to the $2.7 mark.

Due to their dependence on natural gas prices, these price levels are also important for ETFs such as the Direxion Daily Natural Gas Related Bear 3X ETF (GASX), the Direxion Daily Natural Gas Related Bull ETF (GASL), and the First Trust Natural Gas ETF (FCG).

Be sure to watch for our coverage on natural gas prices on Thursday on natural gas prices could be important for you.

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