Natural gas’s implied volatility
On July 26, 2018, natural gas’s implied volatility was 19.5%, ~2.5% below its 15-day moving average. In the trailing week, natural gas’s September futures have risen 1%, and its implied volatility has fallen ~0.5%. However, since June 2018, these two variables have been moving together.
Based on natural gas’s implied volatility of 19.5% and assuming a normal distribution of prices, natural gas futures could close between $2.69 and $2.83 per MMBtu (million British thermal units) up until August 3, 2018. Prices should stay in this band 68% of the time.
On July 26, natural gas September futures rose 0.3% to $2.762 per million British thermal units. Given the bullish EIA inventory data discussed in part one, natural gas prices may cross the $2.8 level by August 3.
Effects on ETFs and stocks
The above price limits could be important for ETFs that follow natural gas futures such as the ProShares Ultra Bloomberg Natural Gas ETF (BOIL). In the trailing week, BOIL rose 1.6%, and natural gas prices rose 1%. During this period, Southwestern Energy Company (SWN), Gulfport Energy (GPOR), and Cabot Oil & Gas (COG) had returns of -1.5%, -1.4%, and 1.2%, respectively, while Antero Resources (AR) was unchanged. The rise in natural gas prices was not sufficient to help most of these natural gas-weighted stocks to close in the green.