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Natural Gas Price Seasonality in November: what to expect from December contract.

October 31, 2017  

Natural Gas Price Seasonality in November: what to expect from December contract.

November (X) contract expired on October 27 and December (Z) contract became the front month (or prompt contract), which will be traded for most of September. What do we know about seasonal patterns in November (i.e., for December contract)? Click here to see future expiration dates.

Please note, that throughout this article, we will refer to December contract by its futures contract symbol – “Z”

Seasonals are certainly not the only basis for a trade and they can be skewed by one-off events or coincidences. They are just one among many tools, but are something to keep in mind every time the calendar turns.

Historically, Z contract has been a mildly bullish contract. Over the past nine years, its returns have averaged +0.73% (from open to close). However, average returns over the past five years have been much better – just over +3.10% (see Figure 1 in the chart pack below).

In terms of volatility, Z is a relatively quiet contract (at least by the standards of natural gas market, which is itself one of the most volatile). The standard deviation of returns over the past nine and five years was 0.090 and 0.069, respectively, which results in annualized implied volatility being below the average (see Figure 2 in the chart pack below). The level of returns has fluctuated from +12.89% in 2014 to -11.45% in 2009. This may sound like a very wide range, but not when you compare it to the historical volatility of other natural gas contracts. For example, over the past nine years, the level of returns for February contract varied from +26% in 2014 to -26% in 2009.

When it comes to trading Z contract, the bulls have the upper hand. In 56% of cases, the general trend has been bullish (see Figure 3 in the chart pack below). However, when bearish trends do form, they tend to be stronger than bullish trends (but only slightly).  The average return for the bulls has been +7.16% vs -7.31% for the bears (see Figure 4 in the chart pack below).

Please note, that past performance is not indicative of future results. This is especially true for one the most volatile commodities, such as natural gas. Indeed, the performance of natural gas in 2017 so far has deviated from historical performance in five out of nine contracts traded so far. 

Source: CME Group, Bluegold Research calculations

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