Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is Chevron Corporation (CVX). So this week we highlight one interesting put contract, and one interesting call contract, from the April expiration for CVX. The put contract our YieldBoost algorithm identified as particularly interesting, is at the $105 strike, which has a bid at the time of this writing of $1.21. Collecting that bid as the premium represents a 1.1% return against the $105 commitment, or a 6.2% annualized rate of return (at Stock Options Channel we call this the YieldBoost).
Selling a put does not give an investor access to CVX's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless Chevron Corporation sees its shares fall 5.8% and the contract is exercised (resulting in a cost basis of $103.79 per share before broker commissions, subtracting the $1.21 from $105), the only upside to the put seller is from collecting that premium for the 6.2% annualized rate of return.
Worth considering, is that the annualized 6.2% figure actually exceeds the 3.6% annualized dividend paid by Chevron Corporation by 2.6%, based on the current share price of $111.40. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to fall 5.76% to reach the $105 strike price.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV