Implied volatility in refining stocks
Let’s forecast the performances of these stocks for the third quarter, which ends on September 30, 2019. We’ll also review the trends in their implied volatilities in the second quarter.
Phillips 66’s, Marathon Petroleum’s, Valero Energy’s, and HollyFrontier’s implied volatilities rose in the second quarter. Implied volatility in Marathon Petroleum rose 8.8 percentage points over April 1 to 36.3% on June 28. Valero, Phillips 66, and HollyFrontier saw their implied volatilities rise 2.6, 2.3, and 0.2 percentage points, respectively, over April 1 to 29.3% 25.1%, and 33.9%, respectively, on June 28. MPC stands the highest in terms of current absolute implied volatility compared to VLO, PSX, and HFC.
From April 1 to June 28, Marathon Petroleum, Phillips 66, and HollyFrontier fell 6.6%, 1.7%, and 6.1%, respectively, but Valero stock rose 0.9%.
Refining stock price forecast
Considering stocks’ implied volatilities and assuming a normal distribution of prices (using the bell curve model) and a standard deviation of one (with a probability of 68.2%), these stocks’ prices could close between their estimated upper and lower price ranges in the next 94 days ending on September 30.
We can infer from the chart above that Marathon Petroleum stock has the highest upside or downside for the 94 days ending on September 30. MPC could close between $66.2 and $45.6. Phillips 66 could have the lowest upside or downside. Its stock could close between $105.4 and $81.6. HollyFrontier could close between $54.3 and $38.3, and Valero could close between $98.3 and $72.9.
Refining stocks’ future movements will also be dependent on how analysts rate them ahead of their second-quarter earnings releases. For more on analysts’ ratings, read How Analysts Are Rating Refiners ahead of Their Q2 Results.
Implied volatility in the market
The implied volatilities in the SPDR Dow Jones Industrial Average ETF (DIA) and the SPDR S&P 500 ETF (SPY), which closely resemble the Dow Jones Industrial Average and the S&P 500 Index, respectively, have risen.
The implied volatilities in DIA and SPY have risen 1.0 percentage point and 0.6 percentage points, respectively, over April 1 to their current levels of 13.5% and 12.1%. DIA’s and SPY’s values have risen 2.6% and 3.7%, respectively, in the same period.