Andeavor's 3Q17 Stock Performance Beat the S&P 500

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Part 3
Andeavor's 3Q17 Stock Performance Beat the S&P 500 PART 3 OF 14

Forecasting Andeavor’s Stock Price in 4Q17

What is implied volatility?

Before we get into implied volatility, let’s quickly look at volatility. Volatility shows you how much stock returns change in a given period. When calculated based on historical stock prices, it’s called “historical volatility.”

Also, we can estimate expected future volatility using an option pricing model, which is called “implied volatility.” High implied volatility suggests that a stock price should move more steeply, giving higher positive or negative returns. Conversely, a low implied volatility suggests lower positive or negative returns for a given period.

Forecasting Andeavor&#8217;s Stock Price in 4Q17

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Implied volatility in Andeavor

Implied volatility in Andeavor fell from 24.2% on July 3, 2017, to the current level of 21.1%. Implied volatility in PBF Energy (PBF) fell 0.9% to the current level of 36.9%. However, implied volatility in HollyFrontier (HFC) and Delek US Holdings (DK) rose 3.0% and 0.5%, respectively, since July 3. Currently, HFC and DK’s implied volatility stand at 39.8% and 34.5%, respectively.

The SPDR Dow Jones Industrial Average ETF (DIA) and the SPDR S&P 500 ETF (SPY), the broader market indicators, have seen a fall in implied volatility since July 3. DIA and SPY’s implied volatilities currently stand at 7.7% and 7.0%, respectively.

Expected price range for Andeavor stock for the three-month period ending December 31

Considering ANDV’s implied volatility of 21.1% and assuming a normal distribution of prices (the bell curve model) and a standard deviation of one (with a probability of 68.2%), we find that Andeavor’s stock price could close between $114.1 and $92.2 per share in the next three-month period ending December 31, 2017.

In the next part of this series, we’ll study changes in analyst ratings for Andeavor.


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