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SM Energy Posts 2Q16 Earnings: Why Is It Doing So Well?

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Part 5
SM Energy Posts 2Q16 Earnings: Why Is It Doing So Well? PART 5 OF 6

SM Energy’s Volatility Forecast: The Implication for SM Stock

SM Energy’s implied volatility

As of August 2, 2016, SM Energy (SM) had an implied volatility of ~74.9%, which is ~26.8% below its 260-trading-day historical price volatility of ~102.2%. In the five days leading up to the earnings, SM Energy’s implied volatility declined from ~76.4% to ~74.9%.

SM Energy’s Volatility Forecast: The Implication for SM Stock

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SM Energy’s 30-day stock price forecast by implied volatility

Assuming normal distribution of prices (bell curve model) and standard deviation of one, and based on its implied volatility of ~74.9%, SM Energy stock is expected to close between $31.84 and $20.58 after 30 calendar days. Based on the standard statistical formula, the stock will stay in this range ~68% of the time.

Other upstream stocks

As of August 2, 2016, other upstream stocks such as Parsley Energy (PE), Gulfport Energy (GPOR), and Energen (EGN) have implied volatilities of ~38.3%, ~44.9%, and ~49.4%, respectively. The SPDR S&P 500 ETF (SPY) has an implied volatility of ~11.1%.

Implied volatility shows the Market’s opinion of the stock’s potential moves, but it doesn’t forecast direction. Implied volatility is derived from an option pricing model. This means the data are theoretical in nature and there’s no guarantee these forecasts will be correct.

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