On January 11, 2018, US crude oil’s implied volatility was 18.2%. That was 5.2% above its 15-day average.
Oil (UCO) (USO) (OIIL) prices and their implied volatility often move in opposite directions. In the last 30 trading sessions, there was a fall of 26.3% in implied volatility, whereas US crude oil prices rose 10.9%. On December 22, 2017, implied volatility fell to 15.5%. It was the lowest since September 2, 2014, more than a three-year low. On January 11, 2018, US crude oil futures were at their last three-year highest closing level.
There is a 68% chance that US crude oil futures could close between $62.2 and $65.41 per barrel until January 18, 2018. That price range is based on a normal distribution of prices. The implied volatility for this price range is 18.2%.
US crude oil prices were at their three-year high in the last trading session. Higher oil prices could be an advantage for energy constituents of the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA), as we saw in Part 2. The same logic could be true for energy ETFs such as the Fidelity MSCI Energy ETF (FENY) and others, which were the focus in Part 3.