Showing posts with label CVX. Show all posts
Showing posts with label CVX. Show all posts

Wednesday, March 9, 2022

Mulitple calls in the oil patch including a 2 day trade

Underlying Security Symbol:  CVX, PSX, VLO


I hate buying high and hoping the stock goes higher.  But today I am doing that because the catalyst is just too strong.  The catalyst in my opinion is the shortage of production capacity of oil.  This is not a supply chain issue.  This is a shortage of the end product.  I don't like buying high, but I am although I spread it out a bit. 

The best deal out there is still CVX


  • Dividend Yield 3.45%
  • Regular dividend increases
  • A May 20 call delivers $4.10 call premium income 


I filled a lot by buying 75 shares at $164.50.  

I sold the May $185 call for $4.10 and I should receive the dividend of $1.42 as the call expiration is after the expected ex-dividend date of May 15, 2022.


I wanted to spread out this chunk of money I am putting into energy so I selected PSX as the new name in my portfolio.  PSX is the second best deal out there for income investors.


  • Dividend Yield 4.66%
  • Recent dividend increase
  • A May 20 call delivers $2.70 call premium income 


I added 200 shares of PSX and sold a call against 100 shares.  My basis is $78.98.  The expected ex-dividend date is May 18, 2022 so I should be able to bank the $.92 dividend.




The third play I made today, trying to take advantage of weak oil prices, was to add VLO, Valero.  While VLO has a good dividend yield of 4.49%, they have not raised the dividend lately.  The best call I could find expired before the ex-dividend date so I would not be banking that dividend unless I still held the stock after the call expired.

However, I was compelled by a two day option.  I bought VLO at $87.32 and sold an $88.00 call for $1.20.  The call expires this Friday.  These little calls can help over time to fill my coffers.










Just a few interesting moves in an active market.

MM MoneyMadam

Data from and Marketxls 

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Tuesday, February 8, 2022

Buy high sell higher - CVX - my favorite call so far today.

Underlying Security Symbol: CVX


I established my base position in Chevron, symbol CVX, when oil was out of favor.  Today I added at a much higher basis $135.79.   I immediately sold a call on these new shares.  I picked an expiration date that provides the highest premium income April 14, 2022 66 days away.  I also was mindful of the ex-dividend date which is February 15.   That means the calculations below include the call premium, the dividend, and the potential capital gain should these shares be assigned.

I will still own my base shares as we watch oil trend toward $100 per barrel.  And as we watch international tensions add to potential strains on oil supply.











It is always risky to buy high and hope to sell higher.  But, as an income investor, I have to take that risk to book the 2.75% yield (dividend plus premium) for a 66 day period.  Some annualize that return to make themselves feel better.  I do not.  But I do bank the income and look to sell more calls at even higher strike prices and premiums.   


Data from and Marketxls 

MM MoneyMadam

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Wednesday, March 4, 2020

Retirees should add to stocks on dips - a conservative guideline

Retired people who live off the income from their portfolios are in turmoil.  We have no safe source of income.  The stock market has made even the worst invest adviser look good and we have felt rich as we watch P/E ratios increase and interest rates go down.

Now we are faced with market turmoil that questions the wisdom of staying in the market and yet our income opportunities outside the market are poor, U.S. Treasuries yield nothing.

Yet, if you are a retired person who lives off the income from your portfolio, you have been through stock market meltdowns before; actually several times.  The difference now is your expenses are two times what they were in the dot com collapse in 2001 and your get basically no income from debt instruments where early in the decade you could get decent yield.  What is a disciplined, knowledgeable investor to do?  Here is my approach.

I am adding to certain stocks. very carefully.  I believe it is called nibbling.  Here is how I am approaching my income portfolio.

Conditions:  I am not looking to add a new position.  I am combing through my portfolio for stocks I want more of based on their dividend yield, their dividend growth and their balance sheet.
  • You have a low cost basis in a dividend stock
  • You still like the stock and have been adding or wanting to add over time even at higher prices than you paid.
  • You have money available to invest:  you receive more dividends, interest, and call premiums and other sources of income than you spend.
During situations like a long bull market, we investors can get a little lazy about working our portfolio.  We tend to look at our holdings more closely when we are not sure they are safe. 

I suggest looking for stocks in your portfolio that are winners.  One of the nice aspects of holding 35 or so stocks in your income portfolio is that you can have a concentrated position in each holding.  That allows you to work some of your holdings by adding to them during a market correction even through you are buying at prices higher than your cost basis.  

The concept of dollar cost averaging down has never worked for me.  I like to add to my winners eventhough I may have a loss on a more recent buy.  Maybe we would call it a hybrid dollar cost average strategy.  

I say adding to a current position is always a prudent decision.  What to look for.
  • Balance sheet
  • Dividend performance during 2008-2009 meltdown
  • Current P/E 
  • Dividend yield greater than average yield on your portfolio
  • Ability to survive a 50% decrease in earnings and still cover the dividend


Using the stocks selected in the 2011 portfolio.  The entire point of adding is to boost income.   The 2011 portfolio yields only 2.9% on the current value.  Income has increased by 70% during these last 9 years and value effective on the close 3/3/202 has increased by 120%.  These are acceptable metrics.

However a yield of 2.9% is not as robust as we would like.  If we have money to invest which are the best stocks to add for dividend income.

The 2011 portfolio holds more stocks than I really like, there are 52 symbols.  I analyzed the entire group eliminating those on which I have a loss and eliminating those with higher D/E ratios than I can stomach in 2020 in spite of cheap interest rates.

Out of that scan, I found 6 stocks worth the effort.  At the current price each stock has a yield greater than the portfolio average; each stock has an acceptable D/E ratio.  Moreover, 5 of the 6 stocks increased the dividend between 2007 and 2009.  PSX does not have dividend history during that time frame.

3/4/2020 Stocks to add for Dividend Yield - Using M* 2011 portfolio holdings
Industry Symbol Price Correction since 2/21 Div Yield D/E Ratio P/E
Oil & Gas Integrated CVX $98.53 11.09% 4.04% 0.21 16.9
Banks - Regional - US CFR $79.24 15.49% 2.94% 0.06 13.7
Specialty Retail GPC $89.25 9.24% 2.90% 1.16 19.3
Leisure HAS $77.85 15.14% 2.62% 0.93 50.4
Oil & Gas Refining & Marketing PSX $74.63 17.29% 3.19% 0.48 11.4
Packaging & Containers SON $52.28 9.36% 2.80% 1.01 19.2

I would eliminate HAS based on the P/E. And, I would prefer a bigger correction in GPC with barely a 9% correction and a P/E of 19.3.  Similarly I would prefer more of a correction in SON.

Since we are so conservative, we worry about everything.  If we add to a position we want to know what would happen to our income during an economic disruption similar to 2007-2009. See the dividend performance of all of the picks during that time frame.

Symbol Qtr Div 2nd qtr 2007 Qtr Div 2nd qtr 2009 Div Growth
CVX $1.38 $1.79 29.71%
CFR $0.79 $1.06 34.18%
GPC $0.97 $1.16 19.59%
HAS $0.37 $0.60 62.16%
PSX no history started divs in 2013
SON $0.65 $0.77 18.46%

I find this result encouraging.  Each one of these companies was able to not only weather the storm of the financial crisis that caused stock prices to crater, but these stocks also continued to pay their stockholders an ever increasing dividend.

Can these stocks do it again? What happens if there is real fundamental deterioration of these stocks.  If earnings were cut in half would earnings cover the dividend?

Symbol Current Earnings EPS cut in half Dividend Coverage Ratio
CVX $1.55 $0.78 $4.76 -3.985
CFR $6.88 $3.44 $2.84 0.6
GPC $4.26 $2.13 $3.05 -0.92
HAS $4.02 $2.01 $2.72 -0.71
PSX $6.80 $3.40 $3.60 -0.2
SON $2.90 $1.45 $1.72 -0.27

Two stocks stand out.  One is Chevron with poor recent earnings.  It appears that covering the dividend with earnings could be a problem.

The other stock is Cullen and Frost Bankers.  If their earnings are cut in half they can still cover the dividend.


If you use a covered call strategy on stocks where you keep your low cost basis shares and trade more expensive shares you boost your income with covered calls.
  • 10% correction on your most recent buy
  • Each add should have a call yielding no less than a quarterly dividend
  • Strike price is above the price of your add

Again using the holdings in my 2011 portfolio, I found 2 additional stocks where I have a gain, but a 10% or more recent loss.  These stocks have good balance sheets, but their dividends are less than the yield on the portfolio.  

They are Intel, INTC and Raytheon, RTN.  

Buying stocks with a puny dividend  at higher prices than my cost basis makes me question my judgement.  I do it when I can supplement my income with covered calls. 

Today  I looked at calls on all the above mentioned stocks and here is what I found.

Symbol Price Strike Premium Added Yield Expires
RTN $201.34 $220.00 $2.40 1.19% 4/17/2020
INTC $58.68 $65.00 $1.10 1.87% 5/15/2020
CFR $79.24 $85.00 $1.50 1.89% 4/17/2020
PSX $74.63 $82.50 $1.50 2.01% 5/15/2020

If I add additional shares, even with the correction, I am adding to my cost basis all for the purpose of increasing my income.  If I keep the shares beause the call expires, I have added a quality stock and I have beat the yield on my portfolio.  Just by adding an extra quarterly dividend per year on a quality stock, you increase your income by 25% .    If my shares are taken, I pocket both the premium and capital gain.   

These are all good scenarios.  Should the shares retreat again and I have money to invest, I will do the same analysis as presented above.

This is a volatile market.  Do your home work and do the math on your trades.  You can make a living on dividend stocks and covered calls.  

M* MoneyMadam

Disclosure:  Long INTC, CVX,

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Monday, November 4, 2019

Maximize yield with capital gain potential MPC CVX or XOM

The goal of every income investor is income followed closely by capital preservation.  Next on our list of goals is to maximize income and retain the opportunity for capital gains.

  • The goal of the trades discussed in this post are to achieve 8% annualized cash flow from a combination of dividends and covered call premiums and to keep an opportunity for capital gains.
  • My analysis illustrates how to determine how much premium from a covered call you need to meet your goal.
  • In this article I present three stocks to consider with only one of these stocks that meets my 8% hurdle. 
In reality this is just a math exercise.  You start with either your basis on a stock or the target price at which you want to buy a stock.  For me I want 8% annual income yield on these stocks.  I will discuss why I set 8% for these stocks later in the post.   Once you have that number in hand, subtract the annual dividend.   After subtracting the dividend from the desired total income, you can determine how much you want in call premiums.

Since you want to capture the dividend with each call expiration date, you can expect to sell no more than 3 calls per year.    Assuming you actually can sell three calls per year, you simply divide the total income you want from the call premiums by three and that determines the premium you need per call to meet your goal.  Let's look at an example then we can apply this theory to real trades.


For XYZ stock we need $2.50 of additional income from premiums on covered calls.  If we get lucky you might get the whole $2.50 on the first call.  However, it is more highly likely that you will end up selling, also known as writing, calls three times during a year at an average of $.83 per contract.  One contract is 100 shares.


In this situation, once I target a stock, I start by looking for premiums rather than strike price.  In most of my covered call trades, I look for a strike price no less than 8% above my basis and usually, I like 10% or more.  I want a strike price high enough that it is not likely to be called away.

On a potful of stocks, however, I will start by looking for a premium and then determine which expiration date is after the next ex-dividend date.  In other words you do not want to sell a call with an expiration date before an upcoming ex-dividend date.  The last value I look at is strike price.

These are good stocks and I know I risk losing my shares if the strike price is too low.  If the best premium comes from an expiration date in fewer than 30 days, I am more willing to risk losing the shares to the call buyer but never, ever at below my basis.   I always want a capital gain if the shares are assigned to the call buyer.

How much capital gain I want is different with each and every stock.  Stocks like Broadcom, symbol AVGO, are very volatile.  Tweet, tariff and headline news can hammer these stocks providing an entry point and these same factors can send it soaring which makes the calls create more income for us.  Picking a high strike price is appropriate.  If you get hit, you'll likely have another chance to get in.

Other stocks are not so volatile and you are at less risk of losing your shares even when you pick a strike price only 5% or so above your basis. Let's get to specifics.

CVX (Chevron), MPC (Marathon Petroleum) and XOM (Exxon Mobil)

Below are tables of the calls available when I did my search today. November 4, 2019.

Remember, I want to add one or more of these stocks and am looking for an annual combined (dividend plus call premium) yield of 8%.

The eight percent comes from the idea that this group of stocks needs to create enough income to fund a specific project.  For me it is an annual charitable contribution but you might think of the idea when you are trying to create the income you need for your required minimal distribution from an IRA.    You don't have to use 8%.  If your hurdle is 5% simply change the parameters in the calculation.

Chevron CVX

All three stocks have good balance sheets.  Chevron carries a D/E (debt to equity ratio of only .20.)    They all have good dividend yields, Chevron's is over 4%.  And they all have revenue growth.  They earn more than they pay out in dividends as measured by EPS and free cash flow.

You can see from the table above, the concept that I can get 8% annual return on this stock by using dividends and calls is not encouraging.  I will pass on the single call available with the premium I

Marathon Petroleum MPC

MPC has the highest D/E ratio at .91 and that it is still acceptable.  It has the lowest dividend yield of 3.19% but that too is acceptable because MPC has the most robust revenue growth.  Revenue growth stimulates the juices of the call buyers.  Moreover, there has been speculation that MPC may split up to provide more shareholder value.

You can see from the table above, we have more than one option to consider.  Note the first call after the ex dividend date is November 22, 2019.    You cannot go out too long on the expiration date or you will not be able to sell three calls in a year.   Within 90 days, MPC provides two calls worth consideration.

December 20, 2019 $72.50 call for a premium of $1.18 and the January 17, 2020 calls for a premium of $1.32.

Exxon Mobil XOM

XOM pays the best dividend of the group with a yield of 5%.  XOM also has a good balance sheet with a D/E ratio of .24.  Revenue growth is the slowest of the group.  XOM calls are interesting.

Notice the only call for me that has interest is the January 17, 2020.  You could sell this call and receive two of the three call premiums you need to receive an 8% combined income yield.  However, the capital gain opportunity is weak at only 1.16%.    You could very easily lose your shares to the call buyer.


Today I added MPC and sold two calls.  I sold the December 20, 2019 $72.50 call and the January 17, 2020 $75.00 call.

We will just have to see what happens.  This is an exercise in working calls in a market with an upside bias.  It is a conservative approach because in the end if the market tanks 'ala 2009, we will still have a stock with steady income and a solid balance sheet.

Good income investing.

M* MoneyMadam
Disclosure:  Long CVX, MPC, XOM with calls on MPC

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Monday, August 12, 2019

A case for Selling Calls for the Income Investor

Call income seems to accompany dividends as the best income tools for August.  Bond interest is so low and quality dividend stocks are so expensive.  Therefore, I sell covered calls on existing positions hoping I do not lose too much opportunity by having my stocks called away.

August is a pretty typical month for call expirations.  History tells us 90 percent of calls expire without action and 10 percent are assigned.   In the table below, I have 18 calls with August expiration dates.

As of today, I have 4 in the money which means the current stock price is above the strike price and 14 out of the money where the current stock price is below the strike price of the call. See the table below.

Only one of these stocks does not pay a dividend and that is YELP.  When I realized YELP was not going to perform quickly, I sold a call very close to the current price and my basis and am hoping it is called away which means the call buyer not only paid me a premium for the option but will also pay me the strike price.  That makes me even on the stock and the call premium in my pocket.

Three other stocks have low dividend yields, MSFT, NVDA and SWKS.  I consider a yield low if it is below the 2 year U.S. Treasury yield so SWKS with a yield of 1.99% may not be considered a low yield stock for some.

I like MSFT but with such a low dividend, as an income investor, I am willing to lose part of my position to the call buyer.  I am underwater on NVDA and will hope the China situation improves at some point.  I will continue to sell calls that are close to my basis so that I can unload NVDA in a similar fashion to YELP.


The four income money calls are:   MSFT $135, WDC (Western Digital Corp.) $52.50, CVS $57.50, and YELP $34.   Expiration dates are August 16, 2019 except where noted.  My reasons for risking losing these stocks to the call buyer are:

  • MSFT - yield is too low
  • WDC - yield is good but not growing, EPS are less then dividend paid out but growing
  • CVS - (August 23 expiration)stock price is weak, I added to my shares that are underwater, and sold calls against the low buys
  • YELP - no dividend and stock price is not performing as hoped 

The downside of selling covered calls is two fold. one is lost opportunity.  The call buyer was right to pay you the money for the option to buy, they execute the call and then the stock soars and you miss out on the growth.    If you always look back and are cannot afford to lose a favorite stock, don't sell calls against your beloved stock.

The second risk is your shares are on call, the stock price tanks, you would like to get rid of the stock but cannot unless you pay money to buy back the call.   This risk is untenable for an income investor.  We don't pay out, we deposit funds.  The moral is to pick the underlying stock carefully.


The 14 out of the money calls are listed below.  Each stock pays a decent dividend and I am willing to keep them.  I am hoping for additional volatility that may allow additional call selling.  But I am not in such a hurry to lose these stocks so I pick strike prices that I think are harder for the stock to attain before the call expires.  Expiration dates are 8/16/2019 except where noted.

  • MSFT - $145 low yield but upside potential for this very well run company 52 week high $141.68
  • COP - $67.50 nice dividend increases of 7+% recently  
  • LVS - $62, $65, $67.50 High yield with enough volatility that strike prices well above my basis are available.
  • M - $23 High yield with an improving balance sheet and very low P/E (price earnings ratio)
  • WSO - $180 Nice yield, with good fundamentals, headline risk due to global exposure provides strike prices well above my basis
  • SWKS - $82.50, $85 Decent yield, good balance sheet, nice volatility, I have been able to sell calls two - three times per year
  • WMT- $115 Walmart does not raise the dividend much and the yield is mediocre, strike prices near the 52 week high of $115.42 pay enough premium to make WMT a hold.
  • WDC - $55 High yield and improving fundamentals
  • SWKS- $81 (August 23 expiration) Decent yield but enough volatility to enjoy call premiums more than once a year
  • RDS.A - $63.50 (August 23 expiration) Very Good Yield, calls available only about once a year and I sell calls on only part of my position always above my basis and hopefully pick a strike price high enough that I am not called away.
  • NVDA- $185 (August 30 expiration) my worst performing stock of the group.  Not enough dividend to care if it is called away.   
In my case 22.22% of the calls are likely to be exercised versus the historical average of 10% but we still have to see what happens the rest of August.  This post illustrates how conservative income investors can use call options to boost their income during a time when quality dividend stocks are expensive and quality bonds are outrageously expensive.

M* MoneyMadam

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Wednesday, December 12, 2018

December Call Expirations

I reviewed the calls I have working in December. My idea of a working call is a stock with a covered call option.  I do not trade options.  I use options to boost income from my income stocks. I review my calls routinely as it is the most actively managed portion of our portfolio. 

All of these calls will expire soon; I don't think any will be assigned.  This post is to demonstrate the result of using covered calls on dividend stocks to boost income. 

  • Eight dividend stocks and one none dividend stock delivered income equal to 5.24% over the past year.
  • Call option income from one call nearly doubled dividend income.
  • Except for Home Depot, HD, all stocks have acceptable D/E (debt to equity) ratios.
  • Except for Square, SQ, all stocks have EPS (earnings per share) greater than Dividend Paid out.

Earning over 5% on nine different stocks from the combined total of dividends and one call is the subject of this post.  Each stock has been in my portfolio for all of 2018 except for Square.   These are not all the stocks we own, nor all the stocks on which we sell calls.  These are just the stocks we sold calls on with a December expiration date.  

My goal is to receive no less than 5% income on my income stocks.   I could put it all in At&T or Ford and get more than 5%.  I confess, we have both of these in our income portfolio.  A well diversified portfolio cannot chase yield.  Our holdings must be balanced to sleep at night.

Nine Stocks with Calls that expire in December:

The stocks that are on call cost us about $110,000.  The average dividend yield of this group of nine stocks is 2.73%.   Clearly I needed to think of something to boost income from them.  I could sell the low yielding stocks and put it all in the one high yielding stock.  The dividend yield of these stocks ranges from 0% to 4.23%.  In stead of selling good companies with a lower yield than I need, I sell calls on shares of them.  

Two tables below present the result of this strategy on these nine stocks.   In the first table is the list of nine stocks, the strike price and income from 16 calls sold on the stocks, and the basis and current value.

Call income is presented in the first table.

Stock Symbol
Strike Price
No Contracts
Call Premium




Update by MarketXLS

Call Inc Yld on Basis

Dividend income is presented in the second table which also illustrates how the combination of dividend income and at least one call can get you more than 5% income.

Stock Symbol
Div Income
Div Yld on Basis
Call Income
Call Yld on Basis


Combined Income
Combined Yld on Basis

Preservation of Principle 

I have always said, I don't care about the overall stock market.  We invest in stocks with good fundamentals that pay us income.  If the value of the stock goes down, we ignore it while we cash dividends.   However, when the stock price goes down so do call option opportunities.  Yet, if the fundamentals are good, it is not uncommon to be able to buy at a lower basis and sell a call when the market raises.    

The value of these nine stocks, I was pleased to find out, is above our basis.  That is a pleasant surprise as stock prices today are not so good.   There is a lot of volatility to use as a sling shot to income.   Some times your great stock will be called away.   Don't sell a call on a position you cannot afford to lose.  However, never feel you have to keep a stock just to sell calls on it.   You need a combination of good stocks, with good fundamentals on which you can sell calls.

When you use a group of dividend stocks to create call income, it is not like buying a put.  You are not paying for risk protection.  I believe that even when a stock's price goes down, the dividend is protection.   You can go a long time between times when call opportunities exist but you get paid dividends as you go. 

How I select my calls

  • Strike price above my basis
  • Call premium plus dividend yields more than 5% income per year
  • Expiration date captures the dividend when the call premium is less than 5%

Readers of this blog know I use a disciplined approach to everything and that include calls.  On stocks like these nine, I try for a strike price that is greater than my basis.   Sometimes I want even more.  When my  basis is low and I don't really want to lose the stock, I might pick a strike price at least 10% above the current price.  This means I have less chance of losing the stock.  Look at Chevron, CVX, and Home Depot, HD to see examples of strike prices well above my basis and above current trading levels.

It is important to note the strike price on CVS Health, CVS, Gilead, GILD, and Nucor, NUE are above my basis by not by much.   These are lower yielding stocks that I sell calls on a lot.  It is okay with  me if they are called away. 

Expiration dates are important.  I like expiration dates that capture the next dividend but are not more than 90 days out. 

You are fooling yourself when you sell calls on a stock and your expiration date is before the ex-dividend date.  If your stock is assigned you get to keep the call premium but you don't get the dividend. 

In situations like this you need to consider the call premium.  If the call premium is more than 5% income on your basis, then you have met the goal already.  Square, SQ, is a good example.  It doesn't pay a dividend so the expiration date is less important.  But the yield of 4.95% on one call and 7.07% on the other justify no dividend and short expiration dates.

It is possible to have a well diversified and safe group of stocks on which you can sell calls at least once per year and receive over 5% of income.   Just think how much income you could create by using calls more than once per year.

M* MoneyMadam
Disclosure:  Long all symbols with calls 

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