New Income Opportunity Emerges in Energy Sector

After a busy February, during which Options Income Weekly members closed out 12 winning positions and we generated more than $1,100 in cash in our live account, March has started off slowly (more like the proverbial lamb than lion). But there’s nothing wrong with that. This sort of ebb and flow is a natural part of a defined trading strategy. 

We’ve closed out three positions in the first half of the month:

This included our first trade on Vertiv Holdings (VRT), a provider of critical infrastructure and services for data centers and related facilities.

We entered the trade during the Feb. 27 Options Income Weekly Live Trading Session. With the stock trading at $67.41 and sporting an implied volatility rank (IVR) of 25%, we sold the VRT 28 Mar 59 Put for $0.94, or $94 per contract. With 24 days to expiration (DTE), we set a target exit price of $0.20. 

Over the next week and a half, VRT ran up nearly 9%, peaking above $73 a share. This was followed by a two-day pullback that saw a brief move back below $66. Yet, our put remained comfortably out of the money (OTM).

VRT then resumed its climb. By March 13, we hit our target exit price, triggering our good ‘til canceled (GTC) order to buy back the put. 

We exited the position with $0.74, or $74 per contract, in cash, or nearly 80% of the max profit more than two weeks ahead of expiration. And we earned a 1.3% return on our capital ($5,900 per contract to secure the put) in 15 days.

We almost logged another closeout on our recovery position in Devon Energy (DVN). Our call was in the money (ITM) and we were on track to have our shares called away at the March 15 expiration, or possibly even earlier due to the fact that the stock was going ex-dividend on March 14. If our shares had been called away, we would have exited the position around breakeven after managing it for several months to avoid taking a loss. 

However, we decided to secure the $0.44 per-share dividend and give ourselves a chance to exit the position at a profit by rolling our call one more time. 

We rolled out to the DVN 5 Apr 46 Call, collecting another $0.32 in premium. In total, we’ve generated around $4.59 in premium selling DVN options and picked up $1.21 in dividends, bringing our cost basis on the position down to $45.20. 

So, if we get called out of shares on April 5 at $46, we will earn an $80 per-contract profit on a position that was significantly underwater at one point. 

Of course, there is always the risk DVN retraces lower and we still own the stock in April. But with energy stocks on the rise as crude oil prices creep higher and the prospects of supply cuts in the Middle East and Europe emerge, there’s a good chance we’ll be exiting the position in early April as planned. 

Speaking of energy stocks, we’ve turned our attention to Occidental Petroleum (OXY), which we think offers income traders an attractive opportunity compared to some other names in the sector. We sold an in-the-money put on the stock for a large chunk of premium with the goal of being assigned shares and selling covered calls.

If our put finishes out of the money and expires worthless, we will keep 100% of the premium and keep selling puts until we take assignment. And once we are assigned shares, we plan to sell calls against them until we are called out, at which point we’ll start the process over again. 

Ideally, we’ll be able to continue on with this strategy for four to six months to build up a hefty amount of income from the stock.

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