February 29, 2024
Covered Call: Buy Permian Resources (PR) Stock and Sell the April 15 Call (exp. 4/19) for a Net Price of $14.55 or less.
The Cabot Options Trader portfolio has several “fast balls” in the portfolio right now (HOOD/TSM/CELH/NTNX/PLTR/MRVL). Let’s diversify a bit with a covered call in PR, which looks great, and recently reported strong earnings … though we are going to do so via a covered call that has a slight twist to it (more on that below).
To execute this trade you need to:
Buy PR Stock
Sell to Open the PR April 15 Call
For every 100 shares of PR stock you buy, you can sell 1 call. For every 200 shares of PR stock you buy, you can sell 2 calls. And so on …
The most you can lose on this trade is $1,455 per covered call if PR stock were to go to zero.
The most you can make on this trade is $45 per covered call (a yield of 3.09% in just over one month) if PR stock were to close above 15 on April expiration.
The breakeven on this trade is at 14.55.
Please note, the twist I mentioned above is PR stock goes ex-dividend on March 12, and I would expect, though it is not a guarantee, that we will collect the $0.05 dividend on top of the covered call premium, which bumps up our yield potential a touch more.
Finally, the reason I am selling an in-the-money covered call in PR, is this will give us a bit room to the downside in case the market and/or PR were to fall in the coming month (essentially, the strategy is a defensive covered call).
| Position (Original) | PR April 15 Covered Call |
| Position Strategy | Covered Call |
| Opened Date | February 29, 2024 |
| Expiration | April 19, 2024 |
| Net Price | 14.54 |
| Strike | 15 |
