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Draw Income From the Oil Patch With Options

 

There are many, many names, stocks and ETFs, that enable you to generate income from the oil patch. From 5%, 7%, 11%, some MLPs (master limited partnerships) yield as a much as 15% or more a year. They carry great risk – many MLPs and most of the names in the oil patch have fallen hard with the drop in oil prices in the past few weeks. I mean really hard — some MLPs are down almost 50%.

There is a way to generate income from the oil patch without that capital risk — with yields much better than straight dividends. I am talking about selling a weekly option on some of the bigger oil names out there.

Make short-term money

Why now?

The euro is falling; commodities are rising after a period of decline due to legitimate concerns about everyone’s economy, from China to Luxembourg to the US. Oil has put in at least a short-term bottom. That is the commodity market side of things. In the real world, gasoline demand is rising due to seasonality. The bottom line: Time to make some short-term money, in case you are not a long-term believer, from oil.

Think simple, think (relatively) low risk, think large premiums. Think Chevron (CVX). The stock is around $99.50 or more; you can sell a $97.50 put that expires this Wednesday and pocket about a four-tenths of a percent return. When you do this every week, that is more than 20% a year. Other names to look at with weekly options include Exxon (XOM), ConocoPhillips (COP) and in a more oblique play, Transocean (RIG).

Devices and gasoline

There is another side to oil : the devices that use oil. And gasoline. The U.S. automakers have been beaten down but their numbers in the U.S. are great and I believe all the bad news about Europe is priced into their stocks.

A name with compelling premiums on weekly options is Ford (F). You can get 13 cents for selling a $10 put on a $10 stock, a put that expires at the end of this week on a stock worth far more than ten bucks. That is a potential 1.3% return in a week, a 65% yearly return.

 

 

 
 
 
 
 
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