Monday, June 17, 2013

CALL OPTION INCOME Energy stock options for your retirement Income

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