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Options Traders Should Watch Midstream Stock Returns


Dec. 4 2020, Updated 10:53 a.m. ET

Midstream stocks with high implied volatilities

EnLink Midstream (ENLC) rose 63.2% in the past year ending on February 6, 2017. It has the highest implied volatility of all the midstream companies that make up the Alerian MLP ETF (AMLP). In the past five days, EnLink Midstream rose 8%.

The above table shows the one-year and last-five-day returns of the units we identified in the previous part of this series as having high and low implied volatilities. It shows how high volatility stocks have generally moved sharper compared to low volatility stocks.

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While EnLink Midstream rose the most among the midstream stocks with high implied volatility in the past five days, Summit Midstream Partners (SMLP) lost the most. On January 31, 2017, Summit Midstream Partners stock fell 8.4%. On January 30, 2017, the company announced the secondary public offering of 4 million shares priced at $24 per share.

NGL Energy Partners (NGL) rose the most in the past year among the list of high implied volatility midstream stocks. In the last four quarters, NGL Energy Partners’ revenue fell 4.6%, while its operating loss was $36.6 million in 3Q16—compared to an operating income of $0.9 million in 3Q15. NGL Energy Partners’ operating profit margin is 0.9%—compared to the industry median of 4%.

Summit Midstream Partners rose the least in the past year among the high implied volatility midstream stocks. In the past four quarters, Summit Midstream Partners’ revenue fell 17.4% and its operating profit fell 28.4%. Summit Midstream Partners’ operating profit margin is 26.4%—compared to the industry median of 4%.

Returns of midstream stocks with low implied volatilities

Among the low volatility midstream stocks, NuStar Energy (NS) clearly outperformed other low implied volatility midstream stocks in the past year. In the last four quarters, NuStar Energy’s revenue rose 1.5%. Its operating profit margin is 20.9%—compared to the industry median of 4%.

EQT Midstream Partners (EQM) rose 0.9% on February 2, 2017. On the same day, it announced its 4Q16 earnings results. Notably, the rise in EQT Midstream Partners’ implied volatility compared to its 15-day average is the highest among the five midstream stocks with the lowest implied volatilities.

In the next part of this series, we’ll look at the midstream stocks with the highest short interest-to-equity float ratios.


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