What Does National Oilwell Varco’s Implied Volatility Mean?

On January 20, 2017, National Oilwell Varco (NOV) had an implied volatility of 34%. Since NOV’s 3Q16 financial results were announced on October 26, 2016, its implied volatility has fallen from 35% to its current level. NOV makes up 3.5% of the SPDR S&P Oil & Gas Equipment & Services ETF (XES).

Helmerich & Payne’s (HP) implied volatility was ~33% on January 20, while Helix Energy Solutions’ (HLX) implied volatility was ~58% on the day. Precision Drilling’s (PDS) implied volatility was ~31% on the day.

Implied volatility reflects investors’ views of a stock’s potential movements. However, it doesn’t forecast the direction of these movements. Implied volatility is derived from an option pricing model. Investors should note that the correctness of suggested implied volatility prices can be uncertain.

Based on National Oilwell Varco’s implied volatility and assuming a normal distribution of stock prices and a standard deviation of one, there’s a 68.2% probability that NOV’s stock will close between $40.92 and $37.24 in the next seven days. NOV’s stock price was $39.08 on January 20, 2017.

Next, let’s discuss investors’ short interests in NOV.