- Joined
- Dec 7, 2002
- Messages
- 8,880
- Reaction score
- 3,872
While I know Mayberry isn't necessarily the most appropriate forum for a stock discussion (although @MASShole has had some great threads in past years), I just thought I would throw out some ideas to those of you who do invest, particularly for those who are interested in options trading.
In the past 6 weeks, the Corona Virus has resulted in the price of oil dropping 20+%. Natural gas is also approaching all time lows (although that is from oversupply), and as a result, the sector is getting HAMMERED. There are some stocks that are literally down 60+% in under a month. Given that I have a high appetite for risk and some discretionary income, here are some suggestions:
For dividend lovers:
I have a shitload of Vermillion Energy (VET) - they pay a 15% dividend after getting smashed over the past year, but senior management has committed to maintaining the payout, even if oil dips to $40 for a prolonged period. Unlike most other Canadian producers, they are heavily diversified across the world, and do not rely on oil sands/fracking, which tend to have much higher operational costs.
If you prefer a larger name, Exon Mobile, Chevron, Royal Dutch Shell are all paying 5+% dividends. These are the oil giants, and will be able to weather a prolonged slump in oil prices
For the options trader:
I normally write covered calls against my positions to generate free cash flow from my core holdings. However, given that some oil stocks have been decimated, the premium being paid on future options contracts are juicy. As an example, Chesapeake Energy's (CHK) 2022 $0.50 call contract is paying $0.32 cents.
Just for holding the stock, that is a greater than 60% rate of return. There are two downsides: 1) the stock falls below $0.20 cents, in which case you will be losing money, or 2) the stock rockets, and you have agreed to sell it at $0.50 cents in two years time.
I personally don't think they are going bankrupt, and I don't mind getting 60% of my money up front (even if it does run). I bought $10K worth of shares, and immediately wrote a covered call and got back $6100 (in addition to holding the $10K worth of stock).
Whiting Energy (WLL), SouthWestern (SWN), Range Resources (RRC) and Denbury (DNR) are all paying really high premiums on their future dated call contracts. If you don't mind locking your money in for a year or two, you have the potential to get a pretty sweet return. Please note that there are also weekly and monthly calls, so you don't necessarily have to tie up your funds (the call premium is just lower the closer you are to the strike date).
For outright risk takers who just want to hold the stock:
Gulfport Energy, Antero Resources and Whiting Petroleum have all gotten SMASHED lately. The falling price in natural gas has called into question whether they can service their long term debt. While this is normally a red flag, all three companies generate free cash flow and are well hedged into the future.
If you think that oil and nat gas are here to stay, there is genuinely an opportunity to triple your position. I owned Gulfport (and sold it) at $3.30 in late December. It is now $1.12 less than 8 weeks later. Beyond the fall in oil from the Corona fears, fundamentals remain largely intact.
With highly leveraged companies, there is always the risk of bankruptcy, so play within your limits and never buy on margin (unless you have funds to cover a margin call).
I would be happy to answer any questions - while I am far from a skilled trader, I do generate several thousand dollars every month in passive income from dividends and covered calls. That money has also come in handy to offset losses during a market downturn. As an example, I am down $27K on Vermillion relative to my initial position, but have collected over $40K in dividend income and covered calls.
Call writing can be an excellent strategy to hedge your bets.
In the past 6 weeks, the Corona Virus has resulted in the price of oil dropping 20+%. Natural gas is also approaching all time lows (although that is from oversupply), and as a result, the sector is getting HAMMERED. There are some stocks that are literally down 60+% in under a month. Given that I have a high appetite for risk and some discretionary income, here are some suggestions:
For dividend lovers:
I have a shitload of Vermillion Energy (VET) - they pay a 15% dividend after getting smashed over the past year, but senior management has committed to maintaining the payout, even if oil dips to $40 for a prolonged period. Unlike most other Canadian producers, they are heavily diversified across the world, and do not rely on oil sands/fracking, which tend to have much higher operational costs.
If you prefer a larger name, Exon Mobile, Chevron, Royal Dutch Shell are all paying 5+% dividends. These are the oil giants, and will be able to weather a prolonged slump in oil prices
For the options trader:
I normally write covered calls against my positions to generate free cash flow from my core holdings. However, given that some oil stocks have been decimated, the premium being paid on future options contracts are juicy. As an example, Chesapeake Energy's (CHK) 2022 $0.50 call contract is paying $0.32 cents.
Just for holding the stock, that is a greater than 60% rate of return. There are two downsides: 1) the stock falls below $0.20 cents, in which case you will be losing money, or 2) the stock rockets, and you have agreed to sell it at $0.50 cents in two years time.
I personally don't think they are going bankrupt, and I don't mind getting 60% of my money up front (even if it does run). I bought $10K worth of shares, and immediately wrote a covered call and got back $6100 (in addition to holding the $10K worth of stock).
Whiting Energy (WLL), SouthWestern (SWN), Range Resources (RRC) and Denbury (DNR) are all paying really high premiums on their future dated call contracts. If you don't mind locking your money in for a year or two, you have the potential to get a pretty sweet return. Please note that there are also weekly and monthly calls, so you don't necessarily have to tie up your funds (the call premium is just lower the closer you are to the strike date).
For outright risk takers who just want to hold the stock:
Gulfport Energy, Antero Resources and Whiting Petroleum have all gotten SMASHED lately. The falling price in natural gas has called into question whether they can service their long term debt. While this is normally a red flag, all three companies generate free cash flow and are well hedged into the future.
If you think that oil and nat gas are here to stay, there is genuinely an opportunity to triple your position. I owned Gulfport (and sold it) at $3.30 in late December. It is now $1.12 less than 8 weeks later. Beyond the fall in oil from the Corona fears, fundamentals remain largely intact.
With highly leveraged companies, there is always the risk of bankruptcy, so play within your limits and never buy on margin (unless you have funds to cover a margin call).
I would be happy to answer any questions - while I am far from a skilled trader, I do generate several thousand dollars every month in passive income from dividends and covered calls. That money has also come in handy to offset losses during a market downturn. As an example, I am down $27K on Vermillion relative to my initial position, but have collected over $40K in dividend income and covered calls.
Call writing can be an excellent strategy to hedge your bets.
