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Gauging Crucial Quantitative Indicators for Utility Stocks

PART:
1 2 3
Gauging Crucial Quantitative Indicators for Utility Stocks PART 1 OF 3

Why NRG’s Implied Volatility Is Rising

Utility stocks with high implied volatilities

On April 21, 2017, NRG Energy (NRG) had the highest implied volatility among the stocks in the Utilities Select Sector SPDR ETF (XLU). NRG’s implied volatility was 37% on April 21, 2.9% above its 15-day average.

Why NRG’s Implied Volatility Is Rising

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Now, let’s take a look at the implied volatilities of other utility stocks as of April 21, 2017.

  • AES (AES): 24.6%, 1.2% below its 15-day average
  • FirstEnergy (FE): 20.4%, 2.7% above its 15-day average
  • Scana (SCG): 19.6%, 1.9% above its 15-day average
  • Exelon Corporation (EXC): 18.1%, 1.6% below its 15-day average

NRG Energy’s implied volatility rose the most compared to its 15-day average among the five utility stocks with high implied volatilities. On April 12, 2017, it announced that it will report its 1Q17 earnings on May 2, 2017. Analysts expect NRG Energy to report a loss of $0.25 per share in 1Q17. Since April 12, 2017, the stock has lost 8.8%. Stocks that fall can see a rise in implied volatility. We’ll analyze NRG’s returns in the next part of this series and short interest in its stock in the final part.

Utility stocks with low implied volatilities

On April 21, 2017, American Electric Power Company (AEP) had the lowest implied volatility of all the utility companies that make up XLU. Its implied volatility was 13.3%, 2.3% below its 15-day average.

Let’s look at the other utility stocks with low implied volatilities as of April 21, 2017:

  • NextEra Energy (NEE): 13.3%, 11.4% below its 15-day average
  • Southern Company (SO): 13.4%, 1.5% below its 15-day average
  • American Water Works Company (AWK): 13.7%, 3.9% below its 15-day average
  • Duke Energy (DUK): 14.1%, 2.4% above its 15-day average

Broadly, the utility stocks listed above are larger companies with relatively stable operations compared to higher-implied-volatility stocks.

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

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