Option Market Alert: Devon Energy Corporation Implied Price Swing Hits An Inflection Point

Devon Energy Corporation (NYSE:DVN) Risk Hits An Inflection Point

Date Published:

No Risk Alert Here: Before we dive into any analysis we simply note that Devon Energy Corporation (NYSE:DVN) risk is neither elevated nor depressed. We'll detail it below -- but that's the lede -- the option market is in a holding period with an IV30 of 36.35% versus the IV30 of the S&P 500 at 11.56%. You might say that the post it note for Devon Energy Corporation would read, "holding pattern." The annual high for Devon Energy Corporation IV30 is 49.95%.

To skip ahead and see if buying or selling options has been a winner in Devon Energy Corporation, you can go here: Getting serious about option trading.

This is a proprietary risk rating and risk alert system that looks forward for the next month -- or really 30 days to be exact -- and that includes weekends. The system is based on multiple interactions of data points, many of which come directly from the option market for Devon Energy Corporation (NYSE:DVN) . The creator of this model is Capital Market Laboratories (CMLviz.com).

In the "Why This Matters" section at the end of this article on Devon Energy Corporation we're going to take a step back and show in great specificity that there is actually a lot less "luck" in successful option trading than many people know. The whole concept of an "option trading expert" is vastly over complicated and we'll talk about how superior returns are earned.

But first, let's turn back to DVN and the company's risk rating:

We also take a peek at the implied vol for the Energy ETF (XLE), our broad based proxy for DVN.

S&P 500 IV30     11.56%
Nasdaq 100 IV30     14.21%
XLE IV30     17.64%

DVN HV 30     54.72%
DVN Current IV30     36.35%
52 Week Low IV30     26.48%
52 Week High IV30     49.95%

The implied price swing risk as reflected by the option market has hit an inflection point relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($30.00, $35.40) within the next 30 calendar days.

The IV30® is the implied price swing risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Devon Energy Corporation shows an IV30 of 36.4%, which is an inflection point for the company relative to its past.

The option market for DVN has shown an IV30 annual low of 26.5% and an annual high of 50.0%, meaning that DVN is at the 42% percentile right now. Here's a table of the data before we dig into the implied price swing risk rating further.

Current IV30    
Low IV30    
High IV30   
36.4% 26.5% 50.0%

The implied stock swing risk from the option market has created a range which is tighter in the next 30 calendar days for Devon Energy Corporation (NYSE:DVN) than it has been on average for the last year on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 54.72%.

We have a situation now where the IV30 is depressed relative to the past and at the same time the option market reflects the likelihood of a smaller stock movement in the next 30-days than the stock has realized in the last 30-days. Let's turn to a chart to see what's going on.
Note how much lower the forward looking stock swing price risk for Devon Energy Corporation is priced (36.4%) compared to what happened just in the last 30-days (54.7%).

Devon Energy Corporation Risk Rating
The DVN risk rating is at 3, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 3 rating are:

The IV30 is below the annual average.
The HV30 is above the 80th percentile.
The IV30 is below the HV30.
The stock has moved -14.1% over the last 3-months which does indicate some elevated risk.