Natural gas’s implied volatility
Most of the time, natural gas prices and implied volatility move in opposite directions. For example, on March 3, 2016, natural gas active futures were at their 17-year lowest closing price. On the same day, the implied volatility was 53.8%. Since then, the implied volatility fell ~29% and natural gas active futures rose 79.1%.
Assuming normally distributed prices, implied volatility of 38.2%, and a standard deviation of one, in the next seven days, natural gas active futures could settle between $2.78 and $3.09 per MMBtu (million British thermal units). The probability for this price range stood at 68%.
On November 2, 2017, natural gas futures settled at $2.94 per MMBtu, below the $3 mark. So, any further fall from this level could make natural gas prices close at the $2.8 level, which could impact ETFs such as the United States Natural Gas Fund LP (UNG), the ProShares Ultra Bloomberg Natural Gas (BOIL), and the First Trust ISE-Revere Natural Gas ETF (FCG). These ETFs aim to follow natural gas futures.
Read Is More Pain Waiting for Natural Gas’s Bulls? to know more about natural gas prices.