What Does Encana’s Implied Volatility Forecast for Its Stock Price?



Encana’s implied volatility

As of November 4, 2016, Encana (ECA) had an implied volatility of ~57.8%, which is ~25.3% below its 260-trading-day historical price volatility of ~77.3%. After earnings were announced on November 3, 2016, Encana’s implied volatility fell from ~61.1% to ~57.8% in two sessions.

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Encana’s 30-day stock price forecasts using implied volatility

Assuming normal distribution of prices (bell curve model) and standard deviation of one, based on its implied volatility of ~57.8%, Encana’s stock is expected to close between $8.18 and $11.42 after 30 calendar days. According to the standard statistical formula, Encana’s stock will stay in this range ~68% of the time.

Other upstream stocks

As of November 4, 2016, other upstream stocks like Southwestern Energy (SWN), Denbury Resources (DNR), and CONSOL Energy (CNX) have implied volatilities of ~69.8%, ~85.1%, and ~64.1%, respectively. The SPDR S&P 500 ETF (SPY) has an implied volatility of ~17.6%.

Implied volatility shows the market’s opinion of the 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’s no guarantee these forecasts will be correct.


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