Weatherford International’s implied volatility
On November 7, 2016, Weatherford International’s (WFT) implied volatility rose to ~89%, as compared to 66% one week previously. This rise was led by Wall Street analysts’ concerns over WFT’s ability to meet debt covenants.
Notably, WFT makes up only 0.03% of the iShares MSCI ACWI Low Carbon Target ETF (CRBN), while the energy sector makes up 6.1% of CRBN.
What does implied volatility really mean?
IV (implied volatility) reflects investors’ views of a stock’s potential movement. However, IV does not forecast direction. IV is derived from an option pricing model, and investors should bear in mind that the correctness of implied-volatility-suggested prices can be uncertain. By comparison, McDermott International’s (MDR) volatility on September 7 was ~50%.
But remember, energy stocks are typically correlated with crude oil prices. Has WFT’s correlation with crude oil risen? Let’s explore this question in the next part of the series.