» » Valor View – NG – Vol at new highs

Valor View – NG – Vol at new highs

  • Not everyone in NG trading community is all bulled up on potential for lower production
  • In fact, SPG Platts came out an article that Permian associated gas may not slow down significantly because as wells get old they get more gassy. Also, the amount of gas being flared may replace any slowdown in production link
  • Recessionary fears across Asia, Europe and US are also keeping a lid on bullish momentum
  • Schools and offices across US have just started going on forced breaks and will lead to even lower demand in shoulder months
  • We are still seeing lot of Summer trades for strikes 1.50 and lower
  • The skew changes today and total vol levels are indicating bid interest in puts in April and May contracts and then tapered interest after that
  • This probably means that any down moves from here will lead to widening of the price spreads and for the back half off the summer it will be a slow bleed down (if any). This widening will happen also because Q1 has got a bid now on expectation of production being down by year end
  • Until this latest Oil price crash, traders were even showing interest in Oct $1.00 put and Oct/Jan -1.00 put CSOs which have not traded in many years
  • Oct $1.00 put interest and Jan $5 call interest can definitely lead to some interesting spread moves
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Top Trades - 03/12
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Intraday vol - 03/10
  • May $1.50/$1.25 put spread traded 20,000 times and April $2.25 call traded over 10,000 times today
  • Intraday vol of vol is very high just like the vol of price. There doesn't seem to be any pattern to vol right now, it is just going with any large flow at that time
  • Summer vol is trading levels not seen in a long time and a sharp contrast to implied vol last year where it even briefly went below 20% in 2019
  • IV levels are high also because of what is going on in equities and crude oil which are facing high vol levels as well
  • Chart below shows that implied vol levels have gone up sharply from being the bottom of the range to new highs for the time of the year in last one month or so
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Seasonal Implied K-V vol levels
  • These implied vol levels are not without merit though
  • If we look at seasonal Realized/Historical Vol chart, implied and historical vols are going one for one
  • Current vol realization are almost reaching peak winter levels
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Realized/Historic K-V vol
  • If not for the historic short interest and crude and equities mayhem, we were looking at a potentially boring shoulder season
  • For the last few days realized vol is even higher than implieds (See chart below) i.e. even at this high vol level, it is paying for itself
  • Vol term structure shows that we can see a slow down in volatility into the summer esp the back half which goes to our point above that spreads are going to absorb the volatility
  • If that is not the case some of the cheaper vol can be found in Q3'2020
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Historical vs Implied K-V strip vol

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