Implied volatility in Shell
In this part, we’ll look at the price range forecast for Royal Dutch Shell (RDS.A) stock for the 16-day period before its earnings. Shell is expected to post its 4Q17 earnings on February 1, 2018. The price range forecast will be based on the current level of implied volatility in Shell.
The implied volatility in Shell has risen 2.2% over October 2, 2017, to the current level of 16.3%. During the same period, Shell stock rose 15.6%.
Expected price range for Shell stock until February 1
To forecast Shell stock’s price range, we considered Shell’s implied volatility of 16.3% and assumed a normal distribution of prices (bell curve model) and a standard deviation of one (with a probability of 68.2%). With the stated consideration and assumption, Shell’s stock price could close between $72.4 and $67.6 per share in next 16 calendar days ending on February 1, 2018—Shell’s 4Q17 earnings release day.
Implied volatilities in peers
The implied volatility in BP (BP) has risen 4.1% over October 2, 2017, to 18.9%. The implied volatilities in Petrobras (PBR) and PetroChina (PTR) rose 0.7% and 4.6%, respectively, during the same period. Petrobras and PetroChina’s implied volatilities stand at 35.4% and 23.7%, respectively. BP, Petrobras, and PetroChina’s stock prices have risen 10.6%, 16.2%, and 17.5%, respectively, since October 2, 2017.
The SPDR Dow Jones Industrial Average ETF (DIA) and the SPDR S&P 500 ETF’s (SPY) have observed a rise in their implied volatilities. The implied volatilities in DIA and SPY have risen 2.7% and 2.4%, respectively. Currently, the implied volatilities in DIA and SPY stand at 10.4% and 8.7%, respectively. DIA and SPY’s values have risen 14.5% and 9.8%, respectively, since October 2, 2017.
Next, we’ll evaluate analysts’ ratings for Shell’s pre-earnings.