One of the best performing stocks in the Oil & Gas industry over the past 6 weeks has been NRGY Energy, ticker symbol NRGY. Here are the top 10 performers in that time frame:
The chart below shows the 3-month performance of this security as compared to the market benchmark, the S&P 500:
We check the option chain to make sure the equity trades at or above $15 per share, trades at least 250,00 shares per day and, of course, has options associated with it. The options chain below shows that all criteria are met:
We see the published bid price is $0.35 and the actual last trade was for $0.42. Let's assume we can negotiate a bid sale price of $0.40. Since there are 3 weeks remaining until the November contracts expire, here is what this all means. We will receive $40 per contract for purchasing NRGY @ $20 and agreeing to sell it for the same $20 at any time over the next 3 weeks. Let's feed these stats into the Ellman Calculator:
Our 3-week return is 2% which annualizes to 33.2%. If the equity remains at or below $20 by expiration Friday (November 16th) we keep the stock and can sell another option the next month. If the price is higher than $20 by expiration Friday our shares are sold for $20 unless we buy back the option prior to 4PM EST on the 16th. Either way, we keep our 2%, 3-week return. For a free copy of the Ellman Calculator visit the "free resources" link on my web site.
By. Alan Ellman
(alan@thebluecollarinvestor.com)
www.thebluecollarinvestor.com
Qualifications/Background Information: 1- Authored three books on Covered Call Writing. 2- Produced a 4-part DVD and CD Series based on stock & option seminars 3-… More