Traders With Trust Issues

The chart below is a combination of two different stocks:  CDEV and PR. You’ll find Continental Resources, ticker symbol CDEV, on the left. On the right, Permian Resources Company, ticker symbol PR.

Centennial Resource Development Inc. and Colgate Energy Partners III completed a roughly $7 billion merger to create this new publicly traded exploration and production (E&P) firm Permian Resources Corp, ticker symbol PR.

The chart on the left stopped trading at the merger, and then continued trading as ticker PR after the merger. Immediately, PR’s stock traded 20% to a low of $6.12.

It didn’t take long, because one month the stock was trading as high as $11.20, almost a double from just 30 days ago. That’s a lot of movement in a short period of time, perhaps too much movement?

I found this story to be interesting. Maybe it’s because I have trust issues, but this acquisition seems a bit “off” to me. So, we did some digging.

PR just began trading, so we do not have historical data to analyze; but we can look at the previous behavior of CDEV. CDEV has never traded to $11/per share, so seeing the quick jump made me inquisitive.

I then noticed, in only its first month of options trading, PR trades right up to its Implied Volatility band. Does the market really think PR is so undervalued it should double in value in 30 days?  

My guess is this strong rally is way overdone, the stock PR should (most likely) trade down from its Implied Volatility Band.