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Income Advisor
Conservative investing. Double-digit income.

February 19, 2021

Sell CVX April 1 $95.50 call at $4.30 or better

Sell CVX April 1 $95.50 call at $4.30 or better

Expiration date: April 1
Strike price: $95.50
Call price: $4.30

Chevron (CVX) is a best-in-class large integrated oil company. It tends to outperform its peers and its sector while being a less volatile stock as the same time. Since a sharp run higher after the vaccine announcement. CVX has been range-bound. It is now at the top of the post-vaccine range, where it has been twice before. If recent patterns continue, this is the ideal point to write a call. If the stock breaks out to a new range in the next six weeks, which is entirely possible, we will still lock in a high income and total return.

We purchased CVX at a cheaper price (85.69 versus the current 96.15) and can lock in a great income and return. Here are the three basic scenarios that could occur by expiration in six weeks.

  1. The stock goes above our 95.50 strike price.
  • Call premium: $4.30
  • Dividend: $1.29 (the ex-dividend date is February 16)
  • Appreciation: $9.81 ($95.50 strike price minus $85.69 purchase price)
  • Total: $15.40 (total return will be 18% just over three months)
  1. The stock price closes below our 95.50 strike price.
  • Call premium: $4.30
  • Dividend: $1.29
  • Total: $5.59 (total income return of 6.5% in three months)
  1. The stock price declines.
  • The decline will be offset by the $5.59 in income. But even if the stock closes below 95.50 per share on April 1, it is much less likely to fall below the initial purchase price of 85.20 and you should still have an unrealized gain on the stock.
Tom Hutchinson is the Chief Analyst of Cabot Dividend Investor, Cabot Income Advisor and Cabot Retirement Club. He is a Wall Street veteran with extensive experience in multiple areas of investing and finance.