Stock in the News: Exxon Ex-Dividend Feb. 9, Bullish Chart; Sell Covered Calls?
Cautiously trade stocks, covered calls options and cash secured puts options with me for a year. Then you should have a nice total returns trading business.
By Donald E. L. Johnson
Cautious Speculator
XOM and UPS charts are bullish, which is what covered calls and puts traders want.
The stocks gapped up, making them vulnerable to dips.
Covered calls and CSP trades are good ways to enhance dividend income.
UPS and XOM are about to go ex-dividend.
“The Business Week in 7 Stocks” feature on page B2 of Saturday’s Wall Street Journal this week highlights seven stocks: SPOT, XOM, FB, UPS, AMC, SBUX AND SNAP.
XOM and United Parcel Services (UPS) charts are bullish and show the stocks are a bit overbought. That makes them candidates for income investors who trade covered calls and cash secured puts to boost their dividend incomes.
Both stocks’ calls and puts options are active, liquid and deep in terms of the number of options strikes that are worth trading.
Exxon
WSJ.com reported that XOM “. . . reported $23 billion in profit for 2021, its highest total since 2014.”
XOM closed Friday at $81.41, just off its $82.53 52-week high and way above its $48.78 52-week low. Its quarterly 4.32% yield dividend goes ex-dividend on Feb. 9. To get the dividend, a trader needs to buy it by Feb. 8.
Owners who are ready to possibly take profits on XOM if call options are exercised might sell XOM 2.11.22 $82 strike (delta .38) covered calls for $0.87, or an annualized return on risk (RoR) of about 56%. The RoR percentage depends on the price of the stock when the trader purchased it.
Trading weeklies provides better RoR annualized than trading monthly or longer calls. The delta indicates that there is about a 38% probability that the call will be exercised and that the call seller will sell the stock.
Speculators looking to buy XOM at a discount could sell XOM 3.18.22 (39 days) $72.50 (delta -.17) strike cash secured puts for about $0.91, or a 9.84% annualized RoR. Traders who want a higher RoR of about a 34% chance of assignment could sell the $77.50 strike puts for about a 22.3% annualized RoR. Higher returns come with higher assignment risks. If the puts were to be assigned, the trader could then sell covered calls on the stock and collect dividends until the stock was called.
United Parcel Services
Last week, UPS delivered a bullish earnings report and hiked its dividend by 49%.
UPS closed Friday at $224.79, off its $233.72 52-week high and up from its $156.59 52-week low. It goes ex-dividend on Feb. 18. The annual dividend yield is 2.7%.
Speculators looking to grab the dividend and some options premium income could buy the stock and sell UPS 2.25.22 $235 (delta .21) calls for about a 10.7% annualized yield. If they want to be in the stock for a longer term, they could sell UPS 2.25.22 $240 (delta .12) strike for about a 5.3% annualized return.
To further boost their income, they also could sell UPS 2.25.22 $205 (delta -.11) puts for another annualized RoR of about 6.7%.
The higher the deltas, the higher the risks of assignments and the greater the RoR. Buying the stock and at the same time selling covered calls and puts is more risky than just buying the stock, buying the stock and writing calls or just selling the puts.
I often just sell the puts. My latest XOM puts trade expired worthless and profitable on Friday.
About 80% to 90% of the time, I write puts far enough out of the money so that they don’t get exercised.
So far this year, however, the wild markets have stuck me with a few big paper losses on assigned puts that I’m working myself out of by selling covered calls on the assigned stocks. Getting the net debits (stock cost less cumulative collected dividends and options premiums) on those stocks back to break even could take several months. That assumes that they bounce back and that their options remain liquid with reasonably high premium prices. That is not fun, but it’s a risk you take.
Question: Will you hold XOM, UPS, buy, sell or sell their puts and calls?
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Beware
Like all investing, trading stocks and options is risky. If you can’t sleep with market risks, you might want to let someone else do your trading. Consider an option trading ETF like XYLD, which I own. I also trade its calls and puts. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I own don’t own or have options on the stocks mentioned in this article.
Don, With intervening ex-dividends prior to expiration, I enter in-the-money Covered Calls with chance to achieve good annualized roi either way: (1) if assigned early (on day prior to ex-div); or (2) if assigned at options expiration. I recommend doing this in non-taxable IRA account to avoid short-term capital gains. See my coveredcallsadvisor.blogspot.com blog site for many examples of my Covered Calls 'Dividend Capture Strategy'.
Bought XOM at $82.25. Sold XOM 2.11.22 expiration $84 calls (delta .26) for $0.36, or an annualized RoR of about 33% if I did the same kind of trade every week for 52 weeks. Dividend yield is about 4.28%, ex-dividend 2.9.22. In IRA. Based on annualized returns, I have a 37% hedge or cushion on the stock in terms of the net debit if I did the same trade every week, which is impossible because prices change.