On October 4, 2017, ConocoPhillips (COP), Devon Energy (DVN), Occidental Petroleum (OXY), Anadarko Petroleum (APC), and EOG Resources (EOG) had implied volatilities of ~22.4%, ~31.0%, ~20.0%, 30.1%, and 22.3%, respectively. These upstream stocks fall into the top-five category when scaled by revenues.
Forecasting stock price ranges using implied volatility
Based on their respective implied volatilities and assuming a normal distribution of stock prices with a standard deviation of one and a probability of 68.2%, our top five upstream stocks will likely close in the following ranges during the next 30 days:
- ConocoPhillips (COP): $46.08–$52.40
- Devon Energy (DVN): $33.27–$39.79
- Occidental Petroleum (OXY): $60.32–$67.64
- Anadarko Petroleum (APC): $45.02–$53.52
- EOG Resources (EOG): $90.17–$102.51
Implied volatility is an options-model-based estimate of a stock’s future volatility. While it allows us to arrive at a theoretical estimate of a stock’s potential moves, the direction can’t be forecast. In a bullish market, implied volatility is likely to fall, while in a bearish market, implied volatility is likely to rise.
As we can see in the above chart, DVN has the highest implied volatility among its peers, while OXY has the lowest.
A higher implied volatility means less expected stability in a stock. It also means that investors expect the stock to move significantly in either direction, meaning a higher implied risk.
In the next and final part of this series, we’ll look at short interest trends for these companies for the next 12 months.