Spot charter rates have begun to boom and most expect the good times to continue for many quarters if not longer—while Q3 results were still sour, this company’s stock moves on perception of the future, and it’s pretty much established now that 2020 will be a banner year (analysts see earnings of $3.61 per share!).
Cabot Profit Booster 105
The Stock – Scorpio Tankers (STNG)
Scorpio Tankers has the largest (124 ships on the water, 10 more newbuilds under construction) and most modern fleet (average ship is four years old) of product tankers, shipping oil and other petroleum products.
Spot charter rates have begun to boom and most expect the good times to continue for many quarters if not longer—while Q3 results were still sour, Scorpio’s stock moves on perception of the future, and it’s pretty much established now that 2020 will be a banner year (analysts see earnings of $3.61 per share!). Moreover, it’s not just analysts that are bullish: Scorpio’s CEO bought $450,000 of call options in mid-November (expiring this month) that have worked out. A modest dividend (1.0% or so annual yield) that could grow with earnings adds to the attraction.
Technical Analysis
STNG was up at 98 in 2015, but by late 2018, it had fallen all the way down to 15! But that turned out to basically be the low—shares bottomed out between 15 and 20 for a few months and began to get going in April. Volatility was high, but buying gradually accelerated, and now the trend is clearly up, with STNG rallying eight weeks in a row. You can start a position here or on dips of a point or two. Stop - 34
The Covered Call Trade
Buy Scorpio Tankers (STNG) Stock at 39.25, Sell February 40 Calls (exp. 2/21/2020) for $2.30, or a Net Price of 36.95 or less
Static Return: $230 per covered call (6.22%)
Breakeven: 36.95
Covered Call Return (if assigned): $305 per covered call (8.25%)
Potential Dividend Captured: $0.10
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 36.95 or less. (In this case 39.25 minus 2.30=36.95. Or another example is you could pay 39 for the stock and sell the call for 2.05, which also equals 36.95)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
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