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Midstream Stocks: How Returns Affect Implied Volatility

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Midstream stocks with high implied volatilities

Teekay LNG Partners (TGP) stock has risen 37.9% in the past year as of March 20, 2017. It’s the midstream constituent of the Alerian MLP ETF (AMLP) with the highest implied volatility. In the past five days, TGP stock has risen 5.7%.

During the same period, the Alerian MLP ETF (AMLP) has fallen 0.9%, while the S&P 500 Index (SPY) (IVV) (VNN) (SPX-INDEX) was flat. The Dow Jones Industrial Average (DIA) (DJIA-INDEX) rose 0.1%, and the technology-heavy NASDAQ Composite (COMP-INDEX) (QQQ) rose 0.4% during the same period.

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The above table shows the one-year and trailing-five-day returns of the stocks we’ve identified as having high and low implied volatilities (see part one of this series). As you can see in the above table, high volatility stocks have moved more sharply than low volatility stocks in the last one year and in the last five trading days.

While Teekay LNG Partners (TGP) has risen the most among the midstream stocks with high implied volatilities in the past five days, Rice Midstream Partners (RMP) has fallen the most. We discussed RMP in the previous part.

However, Teekay LNG Partners (TGP) has risen the least among the midstream stocks with the highest implied volatilities in the past year. In the past four quarters, TGP’s revenue fell 2.7%, and its operating profit rose 6%. Teekay LNG Partners’ operating profit margin is 48.4% as compared to the industry median of 4.9%.

NGL Energy Partners (NGL) has risen the most in the past year among the midstream stocks with the highest implied volatilities. In the past four quarters, NGL Energy Partners’ revenue has fallen 26.9%, while its operating profit has fallen 66.4%. Its operating profit margin is 0.5%.

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Returns of midstream stocks with low implied volatilities

Among the midstream stocks with the lowest volatilities, Spectra Energy Partners (SEP) has fallen the most in the last five days and was the only loser in the last one year. In the past four quarters, SEP’s revenue has fallen 4.6%, while its operating profit has fallen 0.6%. Its operating profit margin is 48.5%.

On March 13, 2017, PennEast Pipeline Company reported that Spectra Energy Partners will buy a 10% minority stake in its natural gas pipeline project from PSEG Power. Public Service Enterprise Group (PEG) is the parent company of PSEG Power.

Remember, high short interest in a stock can also reflect the market’s expectation of a large fall, while expectations of large movements in a stock can cause its implied volatility to rise. Continue to the next part for a detailed look at the midstream stocks with the highest short-interest-to-equity-float ratios.

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