Chevron, ConocoPhilips Oil Stocks' Profits Rise With Call Options

NEW YORK (TheStreet) -- Chevron (CVX) and other major oil companies such as ConocoPhillips (COP), China Petroleum  (SNP) and PetroChina (PTR) are alluring candidates for writing covered call options. Let's consider the benefits of this strategy.

I've detailed how "Dividend Aristocrat" stocks -- those with a history of increasing the dividend amount -- such as Coca-Cola (KO) and Home Depot (HD) have features like rising dividends and bearish earnings outlooks that should allow for profitably writing covered call options. The same factors exist for major oil firms such as Chevron, ConocoPhillips, China Petroleum and PetroChina.

Shareholders benefit in three primary ways from writing covered call options on the stocks that they own. The first is from the selling of the call option, which gives the buyer the right but not the obligation to purchase the shares at a higher price within a time frame. During the period when the option is in effect, the shareholder collects the dividends. If the option is exercised, the owner of the stock gains from selling the shares at the higher price.

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There is a market for call options for Chevron, ConocoPhillips, China Petroleum and PetroChina due to how much each stock has risen. Look at the chart below for details. Gas prices are at a 6-year high, which is bullish for oil stocks. Price action like that naturally interests both investors and speculators in call options. It also results in the call options selling at a premium, based on fundamental supply and demand.

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