Options Traders: Which Utility Stocks Are Favorites?


Nov. 20 2020, Updated 11:42 a.m. ET

Utility stocks with high implied volatilities

On March 28, 2017, NRG Energy (NRG) had the highest implied volatility among the companies that make up the Utilities Select Sector SPDR ETF (XLU). NRG’s implied volatility was 35.5% on March 28—5.3% below its 15-day average.

Now, let’s take a look at the implied volatilities of other utility stocks as of March 28, 2017:

  • AES (AES) – 25.2%, or 5.1% below its 15-day average
  • Scana (SCG) – 19.5%, or 3.4% above its 15-day average
  • Pinnacle West Capital (PNW) – 19.1%, or 22.6% above its 15-day average
  • FirstEnergy (FE) – 18.3%, or 1.9% below its 15-day average

Pinnacle West Capital’s implied volatility rose the most compared to its 15-day average among the five utility stocks with high implied volatilities. On March 27, 2017, its stock rose 0.2% and its implied volatility rose 32.3%.

Analysts expect Pinnacle West Capital to report a profit of $0.16 per share in 1Q17. The company is expected to report its 1Q17 earnings on May 5, 2017.

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Utility stocks with low implied volatilities

On March 28, 2017, Duke Energy (DUK) had the lowest implied volatility of all the utility companies that make up XLU. Its implied volatility was 13.2%—3.2% below its 15-day average.

Let’s look at the other utility stocks with low implied volatilities as of March 28, 2017:

  • PPL Corporation (PPL) – 13.2%, or 5.6% below its 15-day average
  • American Electric Power Company (AEP) – 13.4%, or 2% below its 15-day average
  • Southern Company (SO) – 13.8%, or 5.4% below its 15-day average
  • Edison International (EIX) – 14%, or 5.3% above its 15-day average

Broadly, the utility stocks with lower implied volatilities listed above are from larger companies with relatively stable operations—compared to the higher implied volatility stocks that we discussed earlier.

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


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