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Option Traders Should Look at These Upstream Stocks

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High implied volatility

On November 15, 2016, Cobalt International Energy (CIE) had the highest implied volatility among the upstream stocks that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Its implied volatility was ~149.8%, which is ~1.8% above its 15-day average of 147.1%.

High implied volatility in a stock indicates market expectations of large movement in prices. In the next part, we’ll analyze the price returns of CIE.

Below is a breakdown of the implied volatilities of other upstream stocks on November 15, 2016:

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  • California Resources (CRC) had an implied volatility of ~96.9%, which was 5.5% below its 15-day average.
  • Denbury Resources (DNR) had an implied volatility of 71.8%, which was 12.4% below its 15-day average.
  • Sanchez Energy (SN) had an implied volatility of ~83.8%, which was ~4.2% above its 15-day average.
  • Chesapeake Energy (CHK) had an implied volatility of ~77.3%, ~1.3% below its 15-day average.

Low implied volatility

On November 15, 2016, Occidental Petroleum (OXY) had the lowest implied volatility among upstream stocks at ~25.4%, which was ~4% above its 15-day average of ~24.4%.

Let’s look at some other upstream stocks with low implied volatilities on November 15, 2016:

  • EOG Resources (EOG) had an implied volatility of ~29.9%, which was 3.7% below its 15-day average.
  • EQT (EQT) had an implied volatility of ~31.5%, ~1.5% above its 15-day average.
  • Pioneer Natural Resources (PXD) had an implied volatility of ~34.5%, 2.3% above its 15-day average.
  • Cimarex Energy (XEC) had an implied volatility of ~37.1%, 5.2% above its 15-day average.

A pattern emerges when we compare high implied volatility stocks to low implied volatility stocks. Most high volatility stocks are smaller upstream energy companies with weaker financial metrics. The stocks with lower volatilities are larger companies in a more solid financial situation.

In the next part of this series, we’ll look at the returns of these upstream stocks.

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