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Returns of Utility Stocks with High and Low Implied Volatilities

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Utility stocks with high implied volatilities

As we saw in the previous part of this series, NRG Energy (NRG) has the highest implied volatility of all the utility companies that make up the Utilities Select Sector SPDR ETF (XLU)

NRG has fallen 10.5% on a YTD (year-to-date) basis. In the last five days, it’s fallen 13%. NRG Energy has fallen the most YTD among utility stocks with high implied volatilities.

Stocks that fall usually experience rises in volatility. Large moves in prices can also cause volatility to rise. The large fall in NRG in the last few days could explain its high implied volatility.

Below are the YTD returns of the utility stocks we’ve identified as having high implied volatilities:

  • AES (AES): 25.4%
  • FirstEnergy (FE): 7%
  • NiSource (NI): 16.4%
  • CenterPoint Energy (CNP): 23.4%

Here are the five-day returns for these stocks.

  • AES: -1%
  • FirstEnergy: 2.4%
  • NiSource: -0.6%
  • CenterPoint Energy: 0.1%
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Returns of utility stocks with low implied volatilities

As we saw in the previous part of this series, Dominion Resources (D) has the lowest implied volatility of all the utility companies that are part of XLU. Below are the YTD returns of Southern Company and the other utility stocks we’ve identified as having low implied volatilities:

  • Dominion Resources (D): 9.2%
  • Duke Energy (DUK): 10.3%
  • NextEra Energy (NEE): 21.5%
  • Southern Company (SO): 8.9%
  • PPL Corporation (PPL): -0.8%

Now, let’s look at the five-day returns of these stocks.

  • Dominion Resources: 0.8%
  • Duke Energy: 0.8%
  • NextEra Energy: 1.3%
  • Southern Company: 0.5%
  • PPL Corporation: 1.4%

As we can see from the lists above, higher implied volatility utility stocks have seen larger movements YTD compared to lower implied volatility stocks.

In the final part of this series, we’ll look at the utility stocks with the highest short interest-to-equity float ratios.

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