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Which Upstream Stocks Have the Highest Implied Volatilities?

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High implied volatility                    

On January 13, 2017, Cobalt International Energy (CIE) had the highest implied volatility among the upstream stocks that make up the SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

CIE’s implied volatility was ~144.4%, ~9.2% higher than its 15-day average of 132.3%.

On December 7, 2016, Cobalt International Energy announced the completion of its debt exchange and financing transaction with certain holders. Currently, the rise in CIE’s implied volatility compared to its 15-day average is the largest among the five upstream stocks with the highest implied volatilities.

High implied volatility in a stock indicates the market’s expectation of large movements in its price. In the next article, we’ll analyze Cobalt International Energy’s price returns.

Let’s take a look at a breakdown of the implied volatilities of other upstream stocks on January 13, 2017:

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  • California Resources (CRC) had an implied volatility of ~86.7%, 0.2% below its 15-day average.
  • Denbury Resources (DNR) had an implied volatility of 73.5%, 2.1% below its 15-day average.
  • Sanchez Energy (SN) had an implied volatility of ~68.8%, ~3.1% above its 15-day average.
  • Southwestern Energy (SWN) had an implied volatility of ~55.8%, ~4.6% below its 15-day average.

Low implied volatility

On January 13, 2017, Occidental Petroleum (OXY) had the lowest implied volatility among upstream stocks that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at ~21%. This value was 5% below its 15-day average of ~22.1%.

Let’s look at some other upstream stocks with low implied volatilities on January 13, 2017:

  • EOG Resources (EOG) had an implied volatility of ~23.1%, 8.2% below its 15-day average.
  • ConocoPhillips (COP) had an implied volatility of ~26.5%, 3.6% below its 15-day average.
  • Apache (APA) had an implied volatility of ~26.6%, ~9.8% below its 15-day average.
  • Concho Resources (CXO) had an implied volatility of ~29.3%, 8.6% below its 15-day average.

A pattern emerges when we compare high implied volatility stocks with low implied volatility stocks. Most high volatility stocks are small upstream energy companies with weak financial metrics. Stocks with lower volatilities tend to be large companies in more solid financial situations.

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

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