Why Phillips 66’s Diversified Growth Model Matters

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Part 3
Why Phillips 66’s Diversified Growth Model Matters PART 3 OF 12

What’s the Forecast for Phillips 66 Stock for the Next Quarter?

What is implied volatility?

Before we can understand implied volatility, let’s discuss volatility. Volatility shows how much a stock return changes over a given period, and when it’s calculated based on historical stock prices, it’s referred to as historical volatility.

Expected future volatility can be calculated using an option pricing model, which we refer to as implied volatility. A higher implied volatility means that the stock price is expected to move more sharply and provide higher positive or negative returns. Conversely, when implied volatility is low, lower positive or negative returns can be expected for a given period.

What’s the Forecast for Phillips 66 Stock for the Next Quarter?

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Implied volatility in PSX

Implied volatility in Phillips 66 (PSX) has fallen 0.8% since July 3, 2017, to the current level of 16.1%. By comparison, implied volatilities in Valero Energy (VLO), HollyFrontier (HFC), and PBF Energy (PBF) have dropped 1.8%, 0.6%, and 0.8%, respectively, over the same period.

VLO, HFC, and PBF now have implied volatilities of 19.8%, 33.4%, and 37.0%, respectively. Since July 3, VLO’s stock price has risen 3.1%, while HFC and PBF have risen 17.9% and 14.4%, respectively.

The SPDR Dow Jones Industrial Average ETF (DIA) and the SPDR S&P 500 ETF (SPY), the broader market ETFs, have observed a mixed trend. While implied volatility in DIA has risen 0.5% since July 3, implied volatility in SPY has fallen 1.8%.

DIA’s and SPY’s implied volatilities now stand at 8.7% and 8.1%, respectively. Since July 3, DIA and SPY have seen their values rise 2.3% and 2.0%, respectively.

Expected price range for PSX for the three-month period ending December 8

Given PSX’s implied volatility of 16.1% and assuming a normal distribution of prices (bell curve model) and a standard deviation of one (with a probability of 68.2%), Phillips 66’s stock price could close between $91.5 and $77.9 per share over the next three months.

In the next part, we’ll review the analyst ratings for Phillips 66.


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