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Utility Stocks: Tracking Implied Volatility and Short Interest

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Utility Stocks: Tracking Implied Volatility and Short Interest PART 1 OF 3

Why Is NRG Energy’s Implied Volatility Up?

Utility stocks with high implied volatilities

On February 1, 2017, NRG Energy (NRG) had the highest implied volatility among the utility companies that make up the Utilities Select Sector SPDR ETF (XLU).

Why Is NRG Energy’s Implied Volatility Up?

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NRG Energy’s implied volatility was 44.1% on February 1, 2017—5.4% more than its 15-day average.

On January 17, 2017, hedge fund firm Elliott Associates announced that it’s partnering with Bluescape Energy Partners to acquire a combined stake of 9.4% in NRG Energy. Between January 17, 2017, and February 1, 2017, the stock rose 6.5%. In 3Q16, NRG Energy’s adjusted EPS rose 8.4% compared to 3Q15. During the quarter, its cost of operations was a concern despite rising revenue.

Let’s take a look at the implied volatilities of other utility stocks on February 1, 2017.

  • AES’s (AES) implied volatility was 27.3%, which was 1.1% more than its 15-day average.
  • FirstEnergy’s (FE) implied volatility was 21.1%, which was 1% lower than its 15-day average.
  • Exelon’s (EXC) implied volatility was 21.0%, which was 0.2% lower than its 15-day average.
  • Sempra Energy’s implied volatility was 20.1%, which was 10.8% more than its 15-day average.

The rise in Sempra Energy’s implied volatility, compared to its 15-day average, is the highest among the five utility stocks with high implied volatilities. Its implied volatility rose 13% on February 1, 2017. The stock fell ~1% on the same day. Analysts expect Sempra Energy’s 4Q16 EPS at $1.52. Its 4Q16 earnings are expected on February 24, 2017.

Utility stocks with low implied volatilities

On February 1, 2017, NextEra Energy (NEE) had the lowest implied volatility of all the utility companies that make up XLU. Its implied volatility was 15.0%—8.5% lower than its 15-day average.

Let’s look at the other utility stocks with low implied volatilities on February 1.

Large movements or expectations of large movements in stock prices can cause their implied volatilities to rise. In the next part, we’ll take a look at the returns for the above stocks.

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