Natural gas’s implied volatility
Yesterday, natural gas’s implied volatility was 19.8%, ~6.6% below its 15-day moving average. Since February, natural gas’s implied volatility and prices have diverged. These parameters had moved in tandem since last June. In the last week, natural gas April futures have risen 2.8%, and their implied volatility has fallen.
Based on natural gas’s implied volatility of 19.8% and assuming a normal distribution of prices, natural gas futures are expected to close between $2.79 and $2.91 per MMBtu (million British thermal units) 68.0% of the time up until March 22. Natural gas’s intraday high today was just 1.3% below the upper limit of that price forecast. Yesterday, natural gas April futures rose 2% and closed at $2.85 per MMBtu amid worries of moderating production.
Effects on ETFs
These price limits could be important for ETFs that follow natural gas futures. In the last week, the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) has risen 4.6%.
Natural gas–weighted stocks such as Southwestern Energy (SWN), Chesapeake Energy (CHK), Range Resources (RRC), and Antero Resources (AR) are sensitive to changes in natural gas prices. In the last week, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE), which contain natural gas producer stocks, have risen 6.4% and 2.3%, respectively.