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Returns of Utilities with High and Low Implied Volatilities

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Nov. 20 2020, Updated 2:22 p.m. ET

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 2.5% on a YTD (year-to-date) basis. In the last five days, it rose 7.9%. NRG Energy has fallen the most YTD among utility stocks with high implied volatilities. Stocks that fall usually experience a rise in volatility. Also, large moves in prices can cause volatility to rise. NRG Energy’s large movement in the last few days could explain its high implied volatility.

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

Here are the five-day returns for these stocks:

  • AES – 6.7%
  • FirstEnergy – 4.2%
  • Exelon – 1.2%
  • NiSource – 1.1%
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Returns of utility stocks with low implied volatilities

As we saw in the previous part of this series, NextEra Energy (NEE) has the lowest implied volatility of all the utility companies that are part of XLU.

Below are the YTD returns of NextEra Energy and the other utility stocks we’ve identified as having low implied volatilities:

  • NextEra Energy – 20.5%
  • Dominion Resources (D) – 11.6%
  • Duke Energy (DUK) – 11.6%
  • DTE Energy Company (DTE) – 19.9%
  • Southern Company (SO) – 8.5%

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

  • NextEra Energy at -0.6%
  • Dominion Resources – 1.4%
  • Duke Energy Corporation – 1.4%
  • DTE Energy Company – 2%
  • Southern Company – 0.6%

As you can see from the lists above, utility stocks with higher implied volatilities saw larger movements YTD and in the last few days 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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