Natural gas’s implied volatility
On October 19, 2017, natural gas futures’ implied volatility was 38.8%, 9.6% above its 15-day average.
Often, natural gas (UNG) (BOIL) futures and their implied volatility move in opposite directions. For example, on March 3, 2016, the implied volatility rose to 53.8%. On the same day, natural gas futures fell to their 17-year low. Between March 3, 2016, and October 19, 2017, natural gas futures rose 75.3%, while the implied volatility fell 27.9%.
Based on natural gas’s implied volatility of 38.8%, there is a 68% chance that natural gas futures could close between $2.72 and $3.02 per MMBtu (million British thermal units) in the next seven days. The calculation assumes prices are normally distributed and a standard deviation of one.
If natural gas futures fall to the $2.7 mark, it could negatively impact ETFs such as the Direxion Daily Natural Gas Related Bull 3X ETF (GASL), the Direxion Daily Natural Gas Related Bear 3X ETF (GASX), and the First Trust ISE-Revere Natural Gas ETF (FCG), as they track natural gas futures.
Read Is Natural Gas Ripe for a Pullback? for more information.