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Utility Stocks That Lead in Implied Volatility

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Utility stocks with high implied volatility

On October 26, 2016, NRG Energy (NRG) had the highest implied volatility among the utility companies that make up the Utilities Select Sector SPDR ETF (XLU).

NRG Energy’s implied volatility is 52.8%. Its 15-day average implied volatility is 52.1%, and its current volatility is 1.3% higher than its 15-day average.

NRG Energy’s stock fell 3.8% in the last trading session. Its current implied volatility is 85.9% higher than the volatility of AES (AES), the utility stock with the second-highest implied volatility on our list. For this reason, market participants expect a large move in NRG Energy’s stock compared to other utility stocks.

Now, let’s take a look at the volatilities of other utility stocks as of October 26, 2016.

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  • AES’s implied volatility is 28.4%, ~2.7% less than its 15-day average.
  • FirstEnergy’s (FE) implied volatility is 22.4%, 14% less than its 15-day average.
  • NiSource’s (NI) implied volatility is 22.3%, 3.2% less than its 15-day average.
  • CenterPoint Energy’s (CNP) implied volatility is 21.8%, 8.1% less than its 15-day average.

Utility stocks with low implied volatilities

On October 26, 2016, Dominion Resources (D) had the lowest implied volatility of all the utility companies that make up XLU. Dominion Resources’ implied volatility is 16.4%. Its 15-day average implied volatility is 18.7%, so its current implied volatility is 12.4% less than its 15-day average.

Let’s look at the other utility stocks that had low implied volatilities on October 26, 2016.

  • Duke Energy’s (DUK) implied volatility is 17.2%, 10.6% less than its 15-day average.
  • NextEra Energy’s (NEE) implied volatility is 17.2%, 11.6% less than its 15-day average.
  • Southern Company’s (SO) implied volatility is 17.5%, 4.2% less than its 15-day average.
  • PPL Corporation’s (PPL) implied volatility is 17.7%, 12.9% less than its 15-day average.

Large moves, or expectations of large moves, in stock prices can cause stocks’ implied volatilities to rise. We’ll analyze the returns of these high and low implied volatility stocks in the next article.

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