Natural gas’s implied volatility

On October 5, 2017, the implied volatility of US natural gas (UNG) (FCG) (BOIL) active futures was at 33.1%, or 7.3% below the 15-day average.

Could Natural Gas Fall below the $2.8 Mark Next Week?

In most instances, natural gas prices and implied volatility have moved in opposite directions. For example, when US natural gas prices were at their 17-year low on March 3, 2016, the implied volatility spiked to 53.8%.

Between March 3, 2016, and October 5, 2017, this implied volatility fell to 38.5%. But there was a 78.3% jump in natural gas active futures during this period.

Where natural gas prices could go next week

In the next seven days, there’s a 68% chance that natural gas futures could close between $2.79 and $3.06 per MMBtu (million British thermal units). This price range was calculated by assuming that prices are normally distributed, with an implied volatility of 33.1% and a standard deviation of one.

If natural gas prices fall below the $2.8 mark, it could be important for ETFs like the Direxion Daily Natural Gas Related Bull 3X ETF (GASL), the First Trust ISE-Revere Natural Gas ETF (FCG), and the Direxion Daily Natural Gas Related Bear 3X ETF (GASX).

To learn more about the potential future movements of natural gas prices, check out Market Realist’s series Have Natural Gas Prices Turned Bearish?

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