US crude oil’s implied volatility
On September 21, 2017, US crude oil’s implied volatility was 24.8%, or 4.6% below its 15-day average.
Usually, oil prices and implied volatility move inversely. For example, on February 11, 2016, oil’s implied volatility rose to 75.2%. On that day, US crude oil (DBO) (UCO) (USO) active futures settled at a 12-year low.
Since then, implied volatility has fallen 67%, while US crude oil futures have risen 92.9%. In the trailing week, implied volatility fell 0.8%, while oil prices rose 0.4%.
There’s a 68% chance that US crude oil active futures could close between $48.81 and $52.29 per barrel over the next seven days. This calculation is based on the assumption that prices are normally distributed. Oil’s implied volatility of 24.8% and a standard deviation of one was used in this calculation.
On September 21, 2017, US crude oil futures closed at $50.55 per barrel, and so based on its implied volatility, crude oil could easily break below $50 next week, given some bearish catalyst.
However, if US crude oil prices do stay over the $50 mark, it could be a bullish catalyst for equity indexes like the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA). It could also benefit energy ETFs like the Fidelity MSCI Energy ETF (FENY).