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How Midstream Stocks Impacted Their Implied Volatilities

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Midstream stocks with high implied volatilities

Energy Transfer Partners (ETP) stock has fallen 11.2% in the past year as of May 3, 2017. It’s the Alerian MLP ETF (AMLP) constituent with the highest implied volatility, as we saw in Part 1. In the past week, ETP stock has fallen 4.9%. AMLP fell 1.4%, while the broad market S&P 500 Index (SPY) (SPX-INDEX) was flat during that period. Energy accounts for 6.6% of the S&P 500 Index.

The above table shows the one-year and trailing week returns of the stocks we identified in Part 1 as having high and low implied volatilities. As you can see, high volatility stocks moved more sharply than low volatility stocks in the past year and past week.

In the past week, EnLink Midstream (ENLC) fell the most. On May 2, 2017, it declared its 1Q17 earnings, reporting negative diluted earnings of $0.01 per common share. On May 3, the stock fell 3.8%.

In the past year, Energy Transfer Partners (ETP) was the only loser among the midstream stocks with the highest implied volatilities. On May 3, 2017, ETP declared its 1Q17 earnings, as we saw in Part 1 of this series.

In the past year, Energy Transfer Equity (ETE) rose the most among the midstream stocks with the highest implied volatilities. On May 3, 2017, ETE declared its 1Q17 earnings, reporting diluted net income of $0.21 per limited partner share. ETE is the general partner to ETP.

Returns of midstream stocks with low implied volatilities

Among the midstream stocks with the lowest volatilities, Tesoro Logistics (TLLP) fell the least in the past week and outperformed in the past year. On April 19, 2017, TLLP declared a cash dividend of $0.94 per limited partner share for 1Q17, which was 3.3% more than 4Q16.

EQT Midstream Partners (EQM) fell the most in the past week. On April 27, 2017, it reported a diluted net income of $1.36 per limited partner share.

Remember, high short interest in a stock can reflect the market’s expectation of a large fall. Expectations of large movements in a stock can cause its implied volatility to rise.

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

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