Traders Dump Energy Hedges Amid Another Low Hurdle For Earnings
?By Joseph Ciolli
Investors see history repeating for energy companies this season, speculating that profit forecasts are again so low that there?s little need to hedge against a miss.
Implied volatility on an exchange-traded fund tracking energy companies is at its lowest in 14 months versus another ETF mirroring the Standard & Poor?s 500 Index, according to data compiled by Bloomberg. The decline signals falling demand for options used to protect against losses in the shares.
Energy companies in the S&P 500 beat consensus earnings estimates by 33 percent in the first quarter, more than three times any other sector, data compiled by Bloomberg show. With profit for the group forecast to contract 62 percent in the latest reporting period, investors are betting that analyst estimates are once again more bearish than reality, said Robert Pavlik of Boston Private Wealth.
?People were so caught off-guard by last time that they?re hesitant to be too bearish,? Pavlik, who helps oversee $9 billion as chief market strategist at Boston Private Wealth in Boston, said by phone. ?They?ve realized it?s not a slam dunk on the downside.?
This reluctance to hedge comes as a group of S&P 500 energy companies sits close to its lowest level since December 2012. The industry is down 8.1 percent in 2015. After rebounding 11 percent over a six-week period starting in mid-March, the gauge has slipped 11 percent. The energy index rose 0.4 percent at 10:27 a.m. in New York.