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Traders: Why These Utility Stocks Deserve a Deeper Look

PART:
1 2 3
Part 2
Traders: Why These Utility Stocks Deserve a Deeper Look PART 2 OF 3

Analyzing Utility Stocks with High Implied Volatility

Utility stocks with high implied volatilities

NRG Energy (NRG) has risen 41.7% in the trailing year to March 28, 2017. It has the highest implied volatility of all the utility companies that make up the Utilities Select Sector SPDR ETF (XLU).

Analyzing Utility Stocks with High Implied Volatility

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In the past five days, NRG Energy has fallen 0.7%, while XLU has risen 0.1%. The S&P 500 Index (SPY) (QQQ) (SPX-INDEX) rose 0.7%, the Dow Jones Industrial Average (DIA) (DJIA-INDEX) rose 0.2%, and the technology-heavy NASDAQ Composite (COMP-INDEX) (QQQ) rose 1.4% during the same period.

The above chart shows the one-year and trailing five-day returns of the stocks we identified in the previous part as having high and low implied volatilities. Low implied volatility stocks moved sharper and also tended to fall more compared to low implied volatility stocks.

Among high implied volatility stocks, FirstEnergy (FE) has risen the most in the last five days, while Scana (SCG) has fallen the most. On March 24, 2017, the S&P changed its outlook on Scana to “negative” from “stable.”

However, FirstEnergy (FE) fell the most in the past year among high implied volatility utilities. In the last four quarters, its revenue has fallen 4.7%, while its adjusted operating profit has fallen 15.2%. Its operating profit margin is 17.5%.

Returns of utility stocks with low implied volatilities

Edison International (EIX) has risen the most in the last five days and in the past year among low implied volatility utility stocks. In the last four quarters, its revenue has risen 23.2%, while its adjusted operating profit has risen 67.8%. Its operating profit margin is 17.8%. Edison International’s implied volatility rose the most compared to its 15-day average among the five utility stocks with low implied volatilities, as we discussed in Part 1 of this series.

In the next part of this series, we’ll look at utility stocks with the highest short interest-to-equity float ratios. High short interest in a stock can cause its implied volatility to rise.

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