Natural gas’s volatility
On November 30, 2017, natural gas’s implied volatility was 44.3%, about 1% above its 15-day average. On November 29, 2017, natural gas’s implied volatility was 47.7%, its highest level in 2017.
Natural gas (GASL) (GASX) and its implied volatility are usually inversely related, as the graph above illustrates. However, any sharp movement in a security could cause its volatility to rise regardless of the direction of the movement. The recent sharp moves in natural gas are behind the rise in its volatility.
Between December 1 and December 7, 2017, at a probability of 68%, natural gas futures could settle in the price range of $2.84 and $3.21 per MMBtu. This model assumes that prices are normally distributed. Moreover, for this model, natural gas’s implied volatility was set to 44.3% and a standard deviation of one was used.
On November 30, 2017, natural gas active futures closed at $3.025 per MMBtu. ETFs that track natural gas like 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) may fall if natural gas prices slip below the $3 level.
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