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What to Take from Marathon Oil’s Implied Volatility Forecast

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Marathon Oil’s implied volatility

As of August 3, 2016, Marathon Oil (MRO) had implied volatility of ~52.0%, which is ~25.4% below its 260-trading day historical price volatility of ~69.8%. In the five days leading up to the earnings results, Marathon Oil’s implied volatility increased from ~51.95% to ~52.03%.

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Marathon Oil’s 30-day stock price forecast using implied volatility

Assuming a normal distribution of prices and the standard deviation of one, based on its implied volatility of ~52.0%, Marathon Oil’s stock is expected to close between $15.42 and $11.42 after 30 calendar days. Based on the standard statistical formula, Marathon Oil’s stock will stay in this range ~68% of the time.

Other upstream stocks

As of August 3, 2016, upstream stocks Parsley Energy (PE), Gulfport Energy (GPOR), and Energen (EGN) had implied volatility of ~39.4%, ~45.0%, and ~48.8%, respectively. The SPDR S&P 500 ETF (SPY) has implied volatility of ~10.6%.

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

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