Exelon Corporation (NYSE:EXC), a utility services holding company, engages in the energy generation and distribution business in the United States. Exelon is one of the "cleanest" power producers in the country. About half its fleet is nuclear, a quarter is natural gas, and nearly 10% is hydro, wind, and solar.
Shares of this energy giant have been declining recently. This decline is partly attributed to an overall downtrend in energy stocks, and partly attributed to certain concerns regarding the ability of the company to pursue its strategic goals, specifically in the uranium segment.
Obviously, Exelon Corporation (NYSE:EXC) isn't alone in the utility energy business. Its two main competitors are Duke Energy Corp (NYSE:DUK) and Consolidated Edison, Inc. (NYSE:ED). But following Excelon's sharp decline, I believe that at a current price of $30, Exelon Corporation (NYSE:EXC) is much more favorable than its peers for the following reasons:
When this much skepticism enters the market, the premium on options in general -- and put options in particular -- rises exponentially. This means that investors are now able to take advantage of this scenario by selling put options and pocketing fat cash premiums on this trade. As of this writing, shares of Exelon Corporation (NYSE:EXC) are trading at $30.3 and the October $31 puts are selling for $1.85. This translates into an immediate 6% gain on your investment by waiting four months until the October expiration.
To put it differently, investors can act as an insurance company and collect a premium of $185 for each option contract they sell. This contract, in turn, obligates them to buy shares of Exelon Corporation (NYSE:EXC) on the expiration day of October if shares of Exelon are trading under $31. Repeat this trade 3 times a year, and you will have an 18% return annually.