PSX, CVX, and MRO Three energy stocks with call option income.
The market moves up and down and so does your
opportunity to make money on calls. I
have profiled three calls; see the tables below. The point is to demonstrate that you need
to understand how much you will gain by investing in a stock that pays a
dividend and that has call option income potential.
Phillips
Sixty Six, symbol PSX – August Call
PSX Call Option
|
Aug. $70
|
Strike Price
|
$70.00
|
Cost Basis
|
$64.06
|
Call Premium
|
$1.10
|
Dividend*
|
$0.31
|
Gain in $ if assigned
|
$7.04
|
Call Yield
|
1.57%
|
Gain Yield
|
10.06%
|
Total Gain Yield
|
10.50%
|
*Expected to pay in Sept.
|
PSX is an oil and gas refiner. It used to be part of Conoco Phillips,
symbol COP. Now it is a separate
company. The table above illustrates
your gain if you bought PSX today and sold an August $70 call. If the call buyer takes your stock, your gain
would be over ten percent. If you are
stuck with PSX, it could lose value but you will be paid a nearly two percent
dividend while you wait for your next chance to sell a call or to sell the
stock.
Chevron,
symbol CVX – September call
CVX Call Option
|
Sept. $130
|
Strike Price
|
$130.00
|
Cost Basis
|
$121.00
|
Call Premium
|
$1.00
|
Dividend*
|
$1.00
|
Gain in $ if assigned
|
$10.00
|
Call Yield
|
0.77%
|
Gain Yield
|
7.69%
|
Total Gain Yield
|
8.46%
|
*Expected to pay in Aug.
|
CVX is the largest oil and gas company in the
country. It does it all, explore, refine
and sell you retail gas. It also pays
over a three percent dividend. If you
bought CVX today and sold a September $130 call and the call buyer takes your
stock, your gain will be about eight and one half percent. Not as good as PSX, but if you are stuck
with stock, your dividend income is better than CVX.
MRO Call Option
|
Oct. $38
|
Strike Price
|
$38.00
|
Cost Basis
|
$34.90
|
Call Premium
|
$1.00
|
Dividend*
|
$0.17
|
Gain in $ if assigned
|
$4.10
|
Call Yield
|
2.63%
|
Gain Yield
|
10.79%
|
Total Gain Yield
|
11.24%
|
*Expected to pay in Aug.
|
Marathon
Oil, Symbol MRO – October Call
My third example is Marathon Oil. MRO also used to own a refiner. MRO spun off Marathon Petroleum (profiled on
this blog in the past) and now MRO is a smaller company. The table below shows you your return if you
bought MRO today and sold an October $38 call.
Like PSX, the dividend is just about two percent. Therefore,
if you are stuck with this stock after the call option expires, you will get
income but not as much as CVX.
If the call buyer takes your stock, your return will
be over eleven percent.
Only you can decide which option is best for
you. These are three examples to help
you understand how covered call income can boost the return on a dividend
portfolio.
TheMoneyMadam
