Schlumberger’s implied volatility
On April 21, 2017, Schlumberger’s (SLB) implied volatility was 18.7%. Since it announced its 1Q17 financial results on April 21, 2017, Schlumberger’s implied volatility has fallen from 21.4% to its current level.
Implied volatilities of SLB’s peers
National Oilwell Varco’s (NOV) implied volatility on April 28 was ~28%, while Precision Drilling’s (PDS) implied volatility was ~51% on the day. McDermott International’s (MDR) implied volatility on April 28 was ~42%. SLB makes up 0.50% of the SPDR S&P 500 ETF (SPY).
SPY tracks the price and yield performance of the S&P 500 Index (SPX-INDEX). The energy sector makes up 6.3% of SPX-INDEX, which has risen 15% in the past year, compared to the 10% fall in SLB’s price.
Implied volatility and Schlumberger’s 7-day stock price forecast
Based on Schlumberger’s implied volatility and assuming a normal distribution of stock prices, a standard deviation of one, and a probability of 68.2%, SLB’s stock will likely close between $74.47 and $70.71 in the next seven days. SLB’s stock price was $72.59 on April 28, 2017.
What does implied volatility mean?
Implied volatility (or IV) reflects investors’ views on a stock’s potential movements. However, IV doesn’t forecast the direction of these movements. IV is derived from an option pricing model. Investors should note that the correctness of implied volatility’s suggested prices can be uncertain.
Energy stocks are typically correlated with crude oil’s price. What’s SLB’s correlation with crude oil? Let’s find out in the following part of the series.