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Analyzing Integrated Energy and Refining Companies

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Analyzing Integrated Energy and Refining Companies PART 1 OF 3

Why Options Traders Are Watching Alon USA Energy

High implied volatility

On February 16, 2017, Calumet Specialty Products Partners (CLMT) had the highest implied volatility among the integrated energy and refining companies that we’re reviewing in this series.

Why Options Traders Are Watching Alon USA Energy

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Calumet Specialty Products Partners’ implied volatility was 59.9% on February 16—about 5.8% less than its 15-day average. It’s expected to report its 4Q16 earnings on February 24, 2017. Analysts expect Calumet Specialty Products Partners to report a loss of $0.67 per share. In 3Q16, the company reported a loss of $0.42 per share.

The implied volatilities of other integrated energy and refining stocks as of February 16 are as follows:

  • Alon USA Energy (ALJ) – 51.9%, or ~15.2%, more than its 15-day average
  • CVR Refining (CVRR) – 51.6%, or ~10.4% less than its 15-day average
  • CVR Energy (CVI) – 46%, or ~15.2% less than its 15-day average
  • PBF Energy (PBF) – 40.4%, or 0.1% more than its 15-day average

The rise in Alon USA Energy’s implied volatility compared to its 15-day average is the largest among the five integrated energy and refining stocks with the highest implied volatilities. Analysts expect Alon USA Energy to report a loss of $0.34 per share in its 4Q16 earnings. Alon USA Energy is expected to announce its 4Q16 earnings on February 23, 2017.

Low implied volatility

Now, let’s look at some integrated energy companies and refiners with low implied volatilities as of February 16:

  • ExxonMobil (XOM) – implied volatility of 13.8%, or 3.3% less than its 15-day average
  • Chevron (CVX) – implied volatility of 14.6%, or 0.6% less than its 15-day average
  • BP (BP) – implied volatility of 15.6%, or 12.4% less than its 15-day average
  • Phillips 66 (PSX) – implied volatility of 17.5%, or 7.8% less than its 15-day average
  • Suncor Energy (SU) – implied volatility of 17.9%, or 17.7% less than its 15-day average

The companies with low implied volatility are mostly integrated energy companies. They have integrated and diversified business models by business and geography. It makes them safer and more stable financially. It can translate into lower implied volatility in their stocks.

Usually, weaker stocks that fall sharply or that have negative news announced about them experience higher volatility. In the next part, we’ll look at integrated energy companies and refiners’ returns.

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