It’s the final day of the work week. TGIF! 

My Maple Leafs were bounced from the NHL playoffs by the Florida Panthers. The reigning Stanley Cup champions look ready to advance to the final for the third consecutive year. 

If you’re a Panthers fan, you ought to be very happy knowing they’re returning home up 2-0 on the Carolina Hurricanes with a chance to take a stranglehold in the series with a win tomorrow night.

Now, on to the business at hand: Unusual options activity.   

There were 1,378 unusually active options in Thursday’s trading. Two utility stocks made the top 25. Both are down year to date. Three strategies come to mind to profit from their near-term lack of performance in the markets. 

Have an excellent weekend!

AES Corp. (AES)

The Virginia-based utility had the ninth-highest Vol/OI (Volume to Open Interest) ratio yesterday at 43.95. It wasn’t AES Corp.'s (AES) only unusually active option--it had six, ranging from a high of 43.95 to a low of 1.67. 

Of the two utility stocks, I’m more familiar with NextEra Energy (NEE). No matter. They’re both worth considering for one or more options strategies. But first, I want to determine whether the bet is bullish or bearish.   

AES stock is down 53% over the past year, hitting a 41st new 52-week low of the past 12 months on Thursday, its lowest level in the past five years. 

Something must not be right with the utility. 

A quick look at Wall Street’s sentiment suggests we have a stock that investors are unfairly punishing. Of the 11 covering AES stock, seven rate it a Buy (4.00 out of 5) with a target price of $14.18, 47% higher than its current share price. 

As for the Barchart Technical Opinion, it is a Strong Sell, with the long-term indicators suggesting the knife will keep falling. The technicals are definitely bearish. 

How about the valuation?

The utility’s enterprise value of $41.38 billion is 3.42x its revenue in the last 12 months through March 31, according to S&P Global Market Intelligence. Based on the past decade’s numbers, that's not unusual or low, suggesting that AES might warrant the haircut it’s gotten in the past year. Further, its EV/EBITDA multiple for the last 12 months is 12.86x, higher than it’s been since March 2021. 

Lastly, according to Zacks Investment Research, AES missed the top and bottom lines when it reported Q1 2025 results in early May—another possible red flag.  

Thus, I would argue that the share price is fairly valued at this point, meaning it’s unlikely to fall too much further over the remainder of 2025, but I don’t necessarily believe there’s a catalyst to send AES stock on a bullish run. 

NextEra Energy (NEE)

The Florida-based utility had the 12th-highest Vol/OI ratio yesterday at 39.59. NextEra had eight unusually active options yesterday, ranging from a high of 39.59 to a low of 1.44. 

NEE stock is down over the past year, but not nearly as much as AES, off by 11%, trading several dollars above its 52-week low of $61.72. Further, it is well off its October 2023 5-year low of $47.15. It’s also well off its 5-year high of $93.73 in December 2021.  

Of the 21 covering AES stock, 12 rate it a Buy (4.05 out of 5) with a target price of $81.63, 22% higher than its current share price. The Barchart Technical Opinion is a Strong Sell, but slightly less bearish than AES’s technical indicators. 

The utility’s enterprise value of $235.62 billion is 9.44x its revenue in the last 12 months through March 31. That’s well below its December 2021 multiple of 14.04, the highest multiple in the past decade. This suggests it could be undervalued. Further, its EV/EBITDA multiple for the last 12 months is 18.7x, half what it was in December 2021 when it hit its 5-year high. 

NextEra’s share price has suffered because of its commitment to solar and wind-generated power, which is under attack by the Republican-controlled House of Representatives. Estimates put the job losses from the House’s version of President Trump’s tax bill at 860,000, with higher energy costs for American households. 

The good news for NextEra is that it has two big businesses: NextEra Energy Resources, its renewable energy division and Florida Light & Power. This regulated utility sells more power than any other company in America.  

NextEra will spend $120 billion on American energy infrastructure over the next four years. The long-term outlook for the energy producer is excellent.  

Therefore, it is undervalued and likely to go on a bullish run at some point in  2025. 

Options Strategy # 1

The first options strategy involves a short strangle and AES’s $11 call and $9 put expiring on Jan. 16/2026.

A short strangle assumes a stock’s share price will trade within a specific range until expiration. It involves selling a call option and selling a put option at a lower strike price.

In this example, the strategy will be successful if the share price stays between the upside breakeven of $13.00 [$11 call strike + $2 net credit] and $7 downside breakeven [$9 put strike - $2 net credit]. 

The maximum profit with this strategy is the net credit of $2, or 20.77% of the share price. While the maximum profit probability is 19.9%, AES could be dead money for much of the 239 days to expiration. 

Options Strategy # 2

 The second options strategy involves a long strangle with NEE’s $68 call and $65 put expiring on May 30.

A long strangle assumes a stock’s share price will become more volatile. It involves buying a call option and buying a put option at a lower strike price.

In this example, the strategy will be successful if the share price trades above the upside breakeven of $69.43 [$68 call strike + $1.43 net debit] at expiration or below the $63.57 downside breakeven [$65 put strike - $1.43 net debit]. 

The maximum profit with this strategy is unlimited. For example, should the share price jump 10% over the next 8 days, your profit would be $4.41 [$73.63 share price at expiration less $69.43 breakeven on the upside]. That’s a 6.6% return over eight days, and 301.1% annualized [365 / 8 * 6.6%].

The maximum loss is the net debit of $1.43 or 3.7% of the share price. 

As a result, the profit probability is 36.9%, almost double the first strategy’s profit probability. 

Options Strategy # 3

The third and final options strategy involves selling NEE’s $62.50 put expiring on June 20.

You want to generate income from selling the $62.50 put in this situation. The risk with this strategy is that your potential loss is unlimited. For example, if the share price falls to $60 in the next 29 days, at expiration, you would likely have to buy 100 shares at $62.50, higher than the share price.

So, your loss would be $1.53 [$62.50 put strike - $60 share price - $0.97 premium income].   

I’m bullish about NextEra in the long term, so the purchase at $62.50 wouldn’t be the end of the world because you’re getting a better entry point. 

On the income front, your annualized return should the buyer of the put fail to exercise their right to sell 100 shares at $62.50, would be 64% [$0.97 / $66.94 share price * 365 / 8]. 

I like that a lot. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.