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NRG Stock Could Reclaim Multi-Year Highs This Summer

Short-term NRG options are attractively priced to boot

Managing Editor
Jun 14, 2018 at 12:25 PM
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Oil stocks have been in focus ahead of the big Organization of the Petroleum Exporting Countries (OPEC) meeting next week. While NRG Energy Inc (NYSE:NRG) has doubled in value over the last year, the lesser-known energy name is also flashing a notable "buy" signal. What's more, NRG's options are attractively priced, to boot.

Looking closer, NRG stock hit a nearly four-year peak of $35.17 on May 11, before pulling back to familiar support at its 40-day moving average. Per data from Schaeffer's Senior Quantitative Analyst Rocky White, the other eight times the security has come within one standard deviation of this trendline after a lengthy stay above it, it's gone on to average a one-month gain of 5.02%, and was positive six times. Based on its current perch at $34.20 -- up 1% on the day -- another move of this magnitude would put NRG back near $35.92, in new-high territory.

NRG Stock Chart

A shift in sentiment among options traders could create tailwinds for NRG, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio sits at a lofty 39.62, meaning nearly 40 puts have been open for every call on NRG in the past two weeks. This ratio registers in the 85th percentile of its annual range, pointing to a much healthier-than-usual appetite for longs puts over calls lately.

Echoing that, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.62 ranks higher than 81% of all comparable readings taken in the past year. In other words, while call open interest still exceeds put open interest among options expiring within three months, near-term traders are more put-heavy than usual.

Meanwhile, NRG has been one of the most volatile summer stocks over the past 10 years. Traders wanting to speculate on the oil stock's near-term trajectory can scoop up options at a relative bargain, too. Specifically, the security's Schaeffer's Volatility Index (SVI) of 28% is just 10 percentage points from a 12-month low, showing extremely low volatility expectations priced into near-term options.

 

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