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Energy Stock Calls Could Quadruple

Patrick Martin

While most energy stocks are gaining with oil prices and Middle East tensions, NRG Energy Inc (NYSE:NRG) has been sitting out of the rally, already down 8% in 2020. However, this four-day losing streak could be short-lived, based on data from Schaeffer's Senior Quantitative Analyst Rocky White.

More specifically, NRG just pulled back to its 160-day moving average after a lengthy period above the trendline. Per White's modeling, the security has pulled back to this trendline five times in the past three years, and was higher one month later all five of these times, averaging a 16.6% gain. From its current perch at $36.49, a similar move would put the security above the $42 level for the first time since mid April. 

Daily Stock Chart NRG
Daily Stock Chart NRG

What's more, the stock's Schaeffer's Volatility Index (SVI) stands at 23%, just below its two-year average of 30%. If the SVI holds steady around its two-year average over the next month, White's modeling shows that an in-the-money NRG call option could potentially return 364% on another expected bounce off its 160-day trendline.

However, options traders should be warned that the stock has actually been less volatile than expected in the past year, based on its Schaeffer's Volatility Scorecard (SVS) of just 18 (out of 100.)