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Utility Stocks: Implied Volatility and Short Interest Are Vital

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

Scana: Why Its Implied Volatility Rose

Utility stocks with high implied volatilities

On March 17, 2017, NRG Energy (NRG) had the highest implied volatility among the companies that make up the Utilities Select Sector SPDR ETF (XLU). NRG Energy’s implied volatility was 39.3% on March 17—at par with its 15-day average.

Scana: Why Its Implied Volatility Rose

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Now, let’s look at other utility stocks’ implied volatilities as of March 17, 2017:

  • AES (AES) – 25.2%, or 7.1% below its 15-day average
  • Scana (SCG) – 18.9%, or 2.7% above its 15-day average
  • NiSource (NI) – 17.4%, or 0.4% above its 15-day average
  • Exelon (EXC) – 17%, or 8.7% below its 15-day average

Scana’s implied volatility rose the most compared to its 15-day average among the five utility stocks with high implied volatilities. On March 15, 2017, Scana stock rose 1.9%, while its implied volatility rose 9.6%.

The recent rise in natural gas demand due to cooler weather could be causing Scana stock to rise. However, uncertainty surrounding nuclear power reactors being built by Toshiba for Scana could also be contributing to its volatility.

Utility stocks with low implied volatilities

On March 17, 2017, Duke Energy (DUK) had the lowest implied volatility of all the utility companies that make up XLU. Its implied volatility was 12.6%, which was 9% below its 15-day average.

Let’s look at the other utility stocks with low implied volatilities as of March 17, 2017:

  • PPL Corporation (PPL) – 12.8%, or 7.4% below its 15-day average
  • Dominion Resources (D) – 13%, or 10.2% below its 15-day average
  • NextEra Energy (NEE) – 13.4%, or 2.5% below its 15-day average
  • Edison International (EIX) – 13.5%, or 8.2% below its 15-day average

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

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