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What FirstEnergy’s Implied Volatility Indicates

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FirstEnergy’s implied volatility

On November 8, 2017, FirstEnergy (FE) stock had an implied volatility of 15%. It was lower than its 15-day average implied volatility. Stock price movements are generally inversely related to the implied volatility. Ultimately, the implied volatility represents investors’ anxiety.

As we discussed in the previous part, competitive utility stocks are usually volatile due to relatively less stable earnings.

FirstEnergy’s current implied volatility is lower than its average of 18% year-to-date. However, it should be noted that FirstEnergy is highly volatile compared to broader utilities.

Utility stocks are generally considered safe mainly due to their stable stock price movements. However, the Utilities Select Sector SPDR ETF’s (XLU) implied volatility is near 10%—higher than the SPDR S&P 500’s (SPX-INDEX) (SPY) implied volatility of ~7%.

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