We try to find investment opportunities wherever we can and while we feel the overall stock market will decline over the next 15 months there is periodic opportunity to trade in some short term stocks. We were recently called out of our XOM and OXY positions because we had sold covered calls for October expiry and since the value of the stock was higher than our calls, we had to sell our stock to cover the calls. We made a nice tidy profit so we’re not concerned and this was by design and plan.
Oil has been very volatile and we don’t want to be very long on the oil trade but short term opportunities can be very profitable.
Let’s review a sample trade. At the end of September we bought 100 shares of XOM at $85.50 and we immediately sold 1 contract for October 21 2022 $86 strikes for $3.67. We were confident XOM would be trading higher than $86 and were happy to collect the $3.67 premium. On Oct 21, XOM was trading at $105 which means we were forced to sell at $86.
Our profit was $86-$85.50 + $3.67 = $4.17 x 100 = $417 or 4.5% profit in less than 30 days. Why not just buy and hold XOM? There is a lot of volatility due to the geo-political landscape and oil could theoretically crash if the war in Russia-Ukraine ended or OPEC announced a dramatic increase in production or other factors. Incidentally we also sold naked puts for a $1.00 for October with the hope that XOM would not drop below $85. This contract expired worthless and we got to keep the premium. We had similar positions in OXY which were also assigned but earning us a tidy profit.
What about doing another XOM covered call? Well XOM is now trading at $105 which would mean an investment of $10,000+ for just one contract which is a bit too rich especially considering other options like Canadian oil stocks.
We spent the weekend looking at a fabulous review by Shubham Garg.
We prefer equities that trade options and had other criteria we listed below:
- Equities that have growth
- Equities that trade options
- Equities that have dividends
- Equities that have decent financials
So which equities did we like from the video? Here are our top pick:
- CNQ – Canadian Natural Resources
- CVE – Cenovus Energy
- ERF – Enerplus
- OVV – Ovintiv
- SU – Sucor Energy
- VET – Vermillion Energy
- IMO – Imperial Oil
All of these equities have exceptional premiums on calls for November, December and/or January. Our intent would be to execute buy/write trades and only be invested in these companies for a short period of time. It’s also best to avoid dividend payments as there is dividend risk when short equities.
Stay tuned and stay solvent…