Entering text into the input field will update the search result below

Natural Gas Has Broken To The Upside Following A Period Of Low Volatility

Mar. 07, 2018 9:35 AM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL, DCNG8 Comments
Viking Analytics profile picture
Viking Analytics


  • By one measure, historical volatility is the lowest it has been in many years.
  • In recent months, implied volatility has spiked prior to a big move in price.
  • Natural gas is in a current uptrend, and could be a good long candidate if it pulls back in its uptrend channel.
  • It is possible that the recent low volatility suggests that natural gas has once again found a price floor near $2.50/mmBtu.

April Natural Gas 4-Hour Chart

We trade natural gas on a relatively short time-frame, and use the 4-hour chart to look for swing trading setups. April natural gas futures prices have been rising in a well-defined uptrend channel, and in the recent overnight session, broke above this channel. The current price level is the 50% Fibonacci re-tracement, which served as prior support in early February. We have a long bias, and may consider going long if the price pulls back to the March Pivot near $2.70/mmBtu.

Source: Trading View

Natural Gas Volatility

The price of natural gas is volatile, especially in the winter months. The historical average volatility of natural gas is near 45% (by one measure). Over the last three to four weeks; however, the volatility of natural gas has diminished considerably. In fact, one can see on the graph below that the 10-day volatility of natural gas fell to near 13%, the lowest level it has seen in many years.

Source: Trading View

$2.50/mmBtu has been a reliable price floor since early 2017, and the low volatility might suggest that natural gas has indeed found another bottom in late February. It will be interesting to see how this plays out over the next few weeks.

Historical volatility is one thing, and implied volatility is another. Historical volatility measures the prior standard deviation. In contrast, implied volatility is derived from the value of call and put options that are trading. Implied volatility shows what the market implies about a commodity's volatility in the future. Let’s take a look below at the recent implied volatility of the U.S. Natural Gas Fund (UNG).

Source: E-trade

Whereas the 10-day historical volatility is under 13%, the implied volatility of UNG (and NG futures) is currently near 25%. Also, there were three recent spikes in implied volatility, which all occurred

Commodity Conquest

In our Marketplace Service, we publish a daily update on the OPEX price magnets for gold, crude oil and natural gas, along with other indicators and comments. In addition, we conduct buy-side coverage on nine energy and commodity companies. Our verifiable trading record since launching our service in June 2017 is shown below.

This article was written by

Viking Analytics profile picture
Systematic and quantitative analysis.Rob McBride has 15+ years of experience in the systematic investment space and is a former Managing Director at a $14 Billion hedge fund. Rob has deep experience with market data, software and model building in financial markets. Erik Lytikainen has 25+ years of experience as an entrepreneur, business developer and financial analyst. He founded Viking Analytics in 2015 after selling a commodity production & trading company he co-founded in 2006.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (8)

Don't worry natural gas will skyrocket one of these months, probably in August when storage is way down and winter comes in early.
mr charles profile picture
Yes Elvis. and don’t forget about the Chinese....Really don’t know who the US...will import their NG...Too
I agree demand and exports of gas is rising yet just off twenty year low in price so one would expect a huge move to the upside in price. If they don't get it I'd shut down the riggs and wait wouldn't you?
Viking Analytics profile picture
What is the marginal cost of natgas extraction from an already completed well? The supply keeps coming . . .
tipster99 profile picture
The path of least resistance seems lower...
Viking Analytics profile picture
I don't have conviction either way, thus no current trades.
OrangeElvis profile picture
Something is going to have to give on NG. Demand could be off the charts, but seems like supply has no realistic ceiling in North America. Because Russia can undercut us to Europe and much of Asia, a lot of that growth is out of our grasp.
Viking Analytics profile picture
No doubt that the LNG dynamics will be more and more important in the years ahead. Thanks for the comment OE!
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

Related Stocks

SymbolLast Price% Chg
United States Natural Gas Fund, LP ETF
VelocityShares 3x Long Natural Gas ETN Linked to the S&P GSCI® Natural Gas Index ER
VelocityShares 3x Inverse Natural Gas ETN
ProShares Ultra Bloomberg Natural Gas ETF
ProShares UltraShort Bloomberg Natural Gas ETF

Related Analysis

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.