Will Natural Gas Reclaim $3 Next Week?



Natural gas’s implied volatility

On October 12, 2017, natural gas implied volatility was 35.9%, 1.7% above its 15-day average.

Often, natural gas (UNG) (BOIL) prices and implied volatility, share an inverse relationship. For example, on March 3, 2016, when natural gas active futures settled at their 17-year low, the implied volatility spiked to 53.8%. Between March 3, 2016, and October 12, 2017, natural gas prices recovered 82.4%. In fact, the implied volatility fell 33.3% during this period.

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Price forecast

There is a 68% probability that natural gas futures could close between $2.84 and $3.14 per MMBtu (million British thermal units) in the following seven days. To arrive at this price range, we assumed prices are normally distributed. Moreover, natural gas’s latest implied volatility of 35.9% and a standard deviation of one was used in the calculation.

If natural gas prices reclaim the $3 level based on the bullish factors discussed in part one of this series, then it could make ETFs like 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) also advance. These ETFs aim to track natural gas prices.

Read Will Natural Gas’s Fall Continue? for more information.


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