Volatility is the relative rate at which the price of a security moves up and down. Volatility is found by calculating the annualized standard deviation of daily change in price. If the price of a stock moves up and down rapidly over short time periods, it has high volatility. If the price almost never changes, it has low volatility.
Investors care about volatility for seven reasons:
The wider the swings in an investment’s price, the harder emotionally it is to not worry;
Price volatility of a trading instrument can define position sizing in a portfolio;
When certain cash flows from selling a security are needed at a specific future date, higher volatility means a greater chance of a shortfall;
Higher volatility of returns while saving for retirement results in a wider distribution of possible final portfolio values;
Higher volatility of return when retired gives withdrawals a larger permanent impact on the portfolio’s value;
Price volatility presents opportunities to buy assets cheaply and sell when overpriced.
Volatility affects pricing of options, being a parameter of the Black–Scholes model
Basic Energy Services, Inc (NYSE:BAS) has a beta of 2.61 and its price volatility over a week reached 10.67% which for the month stands at 8.52%. The $ 257.52M company on July 30, 2015 publicized its financial and operating results for the second quarter ended June 30, 2015. Including the impact of a special item, second quarter 2015 revenue as reported declined 26% to $193.6 million from $261.7 million in the first quarter of 2015 as all lines of services continued to experience diminished activity levels and increased pricing pressure mainly driven by the reduced rig count.
The second quarter of 2015 included an after-tax charge of $2.9 million, or $0.07 per basic and diluted share, related to a credit given to a customer resulting from the settlement of an audit, which impacted both revenue and earnings. Excluding this special item, Basic reported revenues of $198.1 million in the second quarter of 2015, a decrease of 24% compared to revenue realized in the first quarter of 2015 and a decrease of 45% from revenue of $359.7 million generated in the second quarter of 2014.
Rex Energy Corporation (NASDAQ:REXX) has a beta of 1.09 and its price volatility over a week reached 11.53% which for the month stands at 9.50%. The $ 123.81M company on July 29, 2015 published second quarter 2015 production volumes and price realizations. Rex Energy’s second quarter 2015 production increased to 206.8 MMcfe/d, a 5% increase from first quarter 2015, and exceeded the high-end of the company’s previously reported production guidance of 199.0 – 205.0 MMcfe/d.
McDermott International (NYSE:MDR) has a beta of 1.50 and its price volatility over a week reached 7.77% which for the month stands at 6.76%. The $ 1.05B company on July 29, 2015 reported that it plans to issue a press release regarding its financial and operational results for the second quarter of 2015 on Monday, August 10, 2015 after the close of trading. A conference call to discuss the results is scheduled to begin at 4:00 pm (US Central Time) / 5:00 pm (US Eastern) on the same date.
McDermott invites shareholders and other interested parties to listen to the call over the internet through a link posted in the Investor Relations section of the Company’s website at www.mcdermott-investors.com. A presentation of supplemental financial information will be available on the Investor Relations site at that time.
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