Utilities: What the Implied Volatility Trends Indicate

Implied volatility

On January 18, the Utilities Select Sector SPDR ETF’s (XLU) implied volatility was close to 15%—lower than its 15-day average volatility. At the same time, the S&P 500 had an implied volatility of 14%. The volatility levels across the broader markets seem to be coming back to normal. The S&P 500 witnessed an implied volatility of 31% in the last week of 2018. Utilities, despite being a slow-moving sector, generally exhibit volatility levels that are higher than broader markets.

Utilities: What the Implied Volatility Trends Indicate

The implied volatility represents investors’ unease. Rising volatility is usually related to falling stock prices.

Recently, PG&E (PCG) stock had an implied volatility of 175%—the highest among utilities. The company’s plan to file for bankruptcy due to wildfire liabilities and rating downgrades pulled the stock down.

Southern Company (SO) and Duke Energy (DUK) had implied volatilities close to ~16% last week.