uploads///image

Why NRG Energy’s Implied Volatility Is Elevated

By

Nov. 20 2020, Updated 12:51 p.m. ET

Utility stocks with high implied volatilities

On January 18, 2017, 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 was 41.1% on January 18, 2017. Its 15-day average implied volatility was 41.0%. Its current volatility is 0.30% more than its 15-day average.

On January 17, 2017, hedge fund firm Elliott Associates announced that it’s partnering with Bluescape Energy Partners to acquire a combined stake of 9.4% in NRG Energy. On the same day, NRG stock rose 5.1%, and its implied volatility rose 9.4%.

Let’s take a look at the implied volatilities of other utility stocks on January 18, 2017.

Article continues below advertisement
  • AES (AES): Implied volatility was 26.8%, which was 1.2% lower than its 15-day average.
  • FirstEnergy (FE): Implied volatility was 21.9%, which was 2.4% lower than its 15-day average.
  • Exelon (EXC): Implied volatility was 21.9%, which was 1.3% lower than its 15-day average.
  • CMS Energy (CMS): Implied volatility was 19.4%, which was 5.0% more than its 15-day average.

The rise in CMS Energy’s implied volatility compared to its 15-day average is the highest among the five utility stocks with the highest implied volatilities. On December 20, 2016, Deutsche Bank increased its target price on CMS stock to $47 from $46. On the same day, the stock fell 0.40%, and its implied volatility rose 7.5%.

Utility stocks with low implied volatilities

On January 18, 2017, Southern Company (SO) had the lowest implied volatility of all the utility companies that make up XLU. Its implied volatility was 15.1%, and its 15-day average implied volatility was 16.2%. Its current implied volatility is 6.5% lower than its 15-day average.

Let’s look at the other utility stocks with low implied volatilities on January 18.

  • NiSource (NI): Implied volatility was 16.5%, which was 7.1% lower than its 15-day average.
  • Dominion Resources (D): Implied volatility was 16.6%, which was 0.60% lower than its 15-day average.
  • Public Service Enterprise Group (PEG): Implied volatility was 16.7%, which was 6.1% lower than its 15-day average.
  • Duke Energy (DUK): Implied volatility was 16.7%, which was 0.40% lower than its 15-day average.

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

Advertisement

More From Market Realist

    • CONNECT with Market Realist
    • Link to Facebook
    • Link to Twitter
    • Link to Instagram
    • Link to Email Subscribe
    Market Realist Logo
    Do Not Sell My Personal Information

    © Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.