Many previous articles on this site have focused on the appeal of Big Oil stocks such as BP (NYSE: BP), ExxonMobil (NYSE: XOM), and Occidental Petroleum (NYSE: OXY). When many concerns about the future of the market, it could be time to start writing covered call options on Occidental, ExxonMobil, Occidental Petroleum and other oil and natural publicly traded companies. There are many reasons for writing covered call options for Big Oil shares such as ExxonMobil (chart below).
According to Investopedia, “The covered call strategy is an excellent strategy that is often employed by both experienced traders and traders new to options. Because it is a limited risk strategy, it is often used in lieu of writing calls “naked” and, therefore, brokerage firms do not place as many restrictions on the use of this strategy….There are a number of reasons traders employ covered calls. The most obvious is to produce income on stock that is already in your portfolio.”
A major appeal of writing covered call options according to Dr. Joseph Louro, an expert on options and the Chairman of Investview, (OTC: INVU), an investor technology and education company specializing in options, about 80 percent of options are not exercised.
That means that the risk of writing covered call options is even slimmer. Making this strategy even more appealing for Big Oil shares is that the owner, not the buyer of the options, gets to pocket the dividends.
Overall, Investopedia notes that, “Alternatively, many traders look for opportunities on options they feel are overvalued and will offer a good return. To enter a covered call position on a stock you do not own, you should simultaneously buy the stock and sell the call. Remember when doing this that the stock may go down in value. In order to exit the position entirely, you would need to buy back the option and sell the stock.”
Writing covered call options is a low risk strategy, especially when utilizing tactics and tools from firms like Investview. It offers many upsides with little risk for Big Oil stocks.