uploads/2017/03/return-5.png

Upstream Stocks: How Returns Impact Implied Volatility

By

Updated

Returns of upstream stocks with high implied volatilities

As we saw in the previous part of this series, on March 10, 2017, 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 has fallen ~82.9% in the last year. It was the only loser during this period among upstream stocks with the highest implied volatilities.

In the last five trading sessions, the stock fell 13.6%, while the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 4.6%. During the same period, the S&P 500 Index (SPY) (QQQ) (SPX-INDEX) fell 0.4%, and the Dow Jones Industrial Average (DIA) (DJIA-INDEX) fell 0.5%.

As you can see in the above table, stocks with high implied volatility move sharply. High implied volatility stocks have seen sharper moves in the last year and in the last few days.

Cobalt International Energy reported an operating loss of $199.6 million in 3Q16 compared to an operating loss of $36.5 million in 3Q15. Among the high volatility companies, Southwestern Energy (SWN) fell the least in the last five days, while California Resources (CRC) lost the most.

Article continues below advertisement

Sanchez Energy (SN) rose the most in the last year of all the stocks on our list of high implied volatility upstream stocks. In the last four quarters, its revenue rose 2.6%. It incurred an operating loss of $52.2 million in 3Q16 compared to an operating loss of $488.5 million in 3Q15. Sanchez Energy’s operating profit margin is -9.1% compared to the industry median of 4.3%.

An upstream stock with low implied volatility

Cimarex Energy (XEC) fell the most in the last five days among the low volatility upstream companies. On February 22, 2017, Barclays increased its target price on the stock by $2 to $139.

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

Advertisement

More From Market Realist