Price Forecast:

Bullish Case: Positive sentiment regarding SM Energy's strategic moves in the Permian Basin could lead to price appreciation. The recent strong EPS revisions and a stable dividend policy support a bullish outlook, especially if market volatility decreases.

Bearish Case: Concerns over declining revenues and high implied volatility indicate potential pressure on SM Energy's stock price. Additionally, overall market volatility could trigger further declines, especially if economic conditions worsen.

Potential Outcomes:

• 40%: Continued revenue growth from strategic initiatives.
• 30%: Regulatory changes create negative sentiment.
• 20%: Increasing operational costs compress margins.
• 10%: Unexpected positive news sparks a rally in stock price.

Trading Oracle: Consider implementing a bullish debit spread using SM 01/17/2025 $40 calls and selling $45 calls. With current implied volatility at 41.3%, this strategy benefits from potentially rising prices while limiting exposure to downside risks. Target an execution timeframe ahead of Q1 earnings for maximized profit potential, aiming for a high reward-to-risk ratio.

December 19, 2024