(Reuters) - Implied volatility for U.S. natural gas futures tumbled 40 percent on Monday from an all-time high a month ago as weather forecasts for the rest of the year turned warmer, reducing the risk that the amount of gas in storage will run short this winter.
At-the-money implied volatility, a determinant of an option’s premium, fell to 70.2 percent, its lowest since Nov. 13.
Implied volatility hit an all-time high of 117.5 percent on Nov. 19 after meteorologists projected the weather would remain much colder than normal through early December.
The market worried the cold would cause consumers to burn more gas than usual for heat, forcing utilities to pull large amounts of the fuel from already depleted storage facilities.
Stockpiles are now 20 percent below normal for this time of year and at their lowest in 16 years. [EIA/GAS] [NGAS/POLL]
The sharp moves in implied volatility came as front-month futures on the New York Mercantile Exchange (NYMEX) had their most volatile streak in nine years.
Since the start of the year, implied volatility rose to 59.9 percent in January before dropping to about 25 percent by the end of February.
It languished below 25.4 percent from the start of March through mid-September, falling to a record low of 19.2 percent in late July.
In late September, implied volatility started to rise until Nov. 19 when it hit the record high. Since then, however, it has mostly declined.
Implied volatility has averaged 52.4 percent since September, up from just 26.0 percent during the first eight months of the year. That compared with an average of 37.0 percent in 2017, 38.9 percent during the prior five years (2013-2017) and 49.4 percent in the earlier five years (2008-2012).
The increases in volatility have boosted interest in NYMEX futures.
CME Group Inc, which owns the NYMEX, said total volume in its Henry Hub futures rose to a record high of 1,602,673 contracts on Nov. 14.
The CME also said open interest in the futures hit at least 10 records since August and an all-time high of1,699,571 contracts on Oct. 4.
Reporting by Scott DiSavino in New York; Editing by Bernadette Baum and Jeffrey Benkoe