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A Dividend Transfers Some Extra Energy To This Options Call
Our new options trading service–at inthemoney.capital — has one of the lowest-risk, highest return trade we see in the markets – a one month option on Energy Transfer, symbol ET-NYSE. We see a 2.46% gain here in one month and a few days, or 27.91% annualized.
Our three previous trades netted us 2.04% in 21 days, 1.51% in 43 days and 1.81% in 32 days. These consistent base hits add up quickly–and all these trades are deep in the money covered calls that have very low risk. Often the stock can drop 8-10% and you still make money on these trades. (On this trade, ET would have to drop 17% to not make money!)
We detail those below.
This service is still free, and you can sign up for our next trade below.
My colleague Nathan Weiss and myself know Energy Transfer very well. It was one of our top oil and gas ideas last fall, buying the non-callable preferred (now ET.PR.I-NYSE) from Crestwood (CEQP was the symbol). It’s up 10% and a 9% yield.
Since our launch, In The Money has published three monthly options ideas – all of which have closed (or will close) ‘In the Money.’
The first came on October 27th, buying Tanger Factory Outlet (SKT-NYSE) shares at $22.60 and writing November 17th $21.00 calls (for $1.80), then collecting a $.26 dividend.
Tanger shares closed at $25.58 at options expiration, so the shares were called away and a $.46 (2.04%) return was made in 21 days.
Our November idea involved buying the iShares 20+ Year Treasury Bond ETF (TLT-NASD) for $87.81, writing December 15th $85.00 calls (for $3.80) and collecting their regular monthly dividend ($.2889) and the mid-December dividend ($.3105).
TLT shares closed at $99.15 on December 15th, so our shares were called away. As a result, the November trade earned a $1.59 (1.81%) in 32 days.
In December, we again chose the iShares 20+ Year Treasury Bond ETF (TLT) as our covered call trade, buying TLT shares at $95.63 then writing January 19th, $92.00 calls for $4.75.
With TLT shares closing at $96.52, and a $.3105 dividend having been received, it is highly likely the trade will close ‘In the Money’ on Friday the 19th, resulting in a $1.43 (1.50%) in 43 days.
HERE IS OUR FOURTH TRADE–ONE MONTH
OUR SAFEST TRADE IDEA SO FAR
WITH 2.46% POTENTIAL IN ONE MONTH
Our January covered call trade involves buying ET units at $14.04 and writing February 16th, $12.00 calls for $2.07.
Our January trade should generate a 2.46% gain (including an anticipated $.315 per unit distribution) if ET units trade at $12.00 (or above) at the options expiration – a 27.91% annualized return.
The trade breaks even if ET trades down to $11.66 – a full $2.39 per share (16.99%) below the current price.
Company Overview
Energy Transfer LP is an investment-grade limited partnership which owns and operates one of the largest and most diversified portfolios of energy assets in the United States.
Their core operations include complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, NGL and refined product transportation and terminalling assets and NGL fractionation.
In total, Energy Transfer owns and operates nearly 125,000 miles of pipeline and associated infrastructure in 41 states, with a strategic footprint in all of the major U.S. production basins.
Potential Newsflow
• January 24th (est) – First quarter distribution announcement (expecting $.3150)
• February 6th (est) – First quarter distribution Ex date
• February 16th (est) – Fourth quarter earnings, which should be a non-event
Market Exposure/Risk of a
10% Change in Equity Prices (S&P 500)
With a beta of .97, we would expect ET shares to decline 9.7% if the S&P 500 declined 10.0%, sending the shares to $12.68. This would result in an anticipated gain of $.345 on the covered call position at expiration – net of the $.315 dividend.
If the S&P 500 rallied 10.0%, ET shares would likely rally 9.7% (to $15.40) and the covered call trade would realize the maximum gain of $.345 per share including the dividend, or 2.46%.
SIGN UP FOR OUR NEXT TRADE IDEA—CLICK HERE
Also – here is a good article out today on SA about the Energy Transfer redemption situation:
https://seekingalpha.com/article/4662478-energy-transfer-redemption-part-ii
