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What’s Moving in Your High Volatility Upstream Stock Portfolio?

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Upstream stocks with high implied volatility

As we saw in the previous part of this series, on December 9, 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 stock fell ~78.7% on a YTD (year-to-date) basis—the steepest YTD fall among upstream stocks with the highest implied volatilities. In the past five trading days, Cobalt International Energy stock fell 11.5%.

Stocks that move sharply usually experience a rise in volatility, which could explain Cobalt International Energy’s high implied volatility.

Below are the YTD returns of the upstream stocks with the highest implied volatilities:

Below are the five-day returns for these stocks:

  • California Resources – 5.9%
  • Denbury Resources – 5.9%
  • Sanchez Energy – 5.7%
  • Whiting Petroleum at -0.7%

These stocks saw large movements on a YTD basis and in the past few days, which might help explain their high volatilities.

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Upstream stocks with low implied volatility

As we saw in Part 1 of this series, on December 9, 2016, Occidental Petroleum (OXY) had the lowest implied volatility among upstream stocks that are part of XOP. Below are the YTD returns for the upstream stocks that we identified with low implied volatilities.

Now, let’s look at the five-day returns for these stocks:

  • Occidental Petroleum at 0.7%
  • EOG Resources at 2.6%
  • ConocoPhillips at 5.5%
  • EQT at 4.9%
  • Cimarex Energy at 1.8%

As you can see from the above analysis, the stocks with high volatility saw sharper movements than the stocks with low volatility. Large moves, or expectations of large moves, can push up the implied volatility.

In the final part of this series, we’ll look at the upstream stocks with the highest short interest-to-equity float ratios. High short interest can reflect expectations of large downsides in stocks.

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