Natural gas’s implied volatility
On May 3, natural gas’s implied volatility was 20.3%—5.6% less than its 15-day moving average.
On April 26–May 3, natural gas June futures fell 4%, while the implied volatility fell 4.2%. From September 2017 to date, the two variables have broadly moved together.
On May 4–10, with a 68% probability, natural gas futures could close between $2.67 and $2.79 per MMBtu (million British thermal units) based on natural gas’s implied volatility of 20.3% and assuming that prices are normally distributed.
On May 3, natural gas June 2018 futures fell 1% and settled at $2.73 per MMBtu. Given the bearish drivers discussed in Part 1, natural gas prices might hit the lower limit of the price forecast at $2.67.
The United States Natural Gas ETF (UNG) and the ProShares Ultra Bloomberg Natural Gas (BOIL) follow natural gas futures. On April 26–May 3, natural gas June futures fell 4%. UNG and BOIL fell 3.2% and 6.8%, respectively, during that period.