Traders dump energy hedges amid low hurdle for earnings

New York

INVESTORS see history repeating itself 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 per cent 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 per cent in the latest reporting period, investors are betting that analyst estimates are once again more bearish than reality…