Delta Petroleum Corporation (DPTR) is a Denver, Colorado company that concentrates on the production and sale of natural gas and crude oil. They are an independent company that has seen significant movement in their stock price in the last month – $19.50 to its current price of $26.50.
Delta’s holdings include proved and unproved drilling locations, a 49.5% interest in DHS drilling that allows Delta access to 11 drilling rigs in the Gulf of Mexico. Their home page, www.deltapetro.com, states that their core strategy “is to grow its proved reserves and production via development drilling and acquisitions.”Recent insider trading includes the purchase of $150,000 of shares by the company director in June. Earnings were announced on August 9th. The company is currently losing money, however it is forecasting profitability in FY 07.
The recent rise in stock price and the relatively bullish attitude of the market on this stock make it a good choice for a covered call investment strategy. Having identified this stock as a likely strong performer we turned to PowerOptions‘ Strategy Research Tool to find a covered call with good downside protection. Using this tool an investor can view a wide range of option strategies by simply putting in the symbol (DPTR), month (NOV) and their market outlook (Bullish):
| Covered Calls DELTA PETROLEUM CORP (DPTR) $26.34 Covered Call Strategy Help Bullish | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sell Option |
Expire &Strike |
Option Bid |
Option Volume |
Open Interest |
Downside Protection |
%Return Assigned |
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| QHRKX | 06 NOV 22.50 | $4.20 | 0 | 747 | 15.90% | 1.60% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| QHRKE | 06 NOV 25.00 | $2.40 | 342 | 7896 | 9.10% | 4.40% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| QHRKF | 06 NOV 30.00 | $0.55 | 534 | 971 | 2.10% | 16.30% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| QHRKG | 06 NOV 35.00 | $0.10 | 130 | 337 | 0.40% | 33.40% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The covered call investing position of selling call option QHRKE covered by DPTR has a down side protection of 9.1% and a return if assigned of 4.4%, this trade fits nicely into the power option covered call rules of thumb. The covered call rules of thumb advise, “Be consistent, work it every month. The objective is to do ten trades at 4% not two trades at 20%. Don’t try to over push the return.” This investment has a max profit of $106.00/contract and a max risk of $2,394.00/contract. The max profit and loss and a visual representation of the trade can be easily obtained by selecting the profit/loss chart from the interactive StrategySearch Summary Tool on the PowerOptions website.
To illustrate the sage advice of taking smaller, less risky profits at a greater frequency, we looked a little further out, to a December covered call selling short call option QHRLE (06 DEC 25.00) covered with DPTR.
This investment has a max profit of $206.00/contract, a max risk of $2,294.00/contract, downside protection of 12.9% and return if assigned of 9%. This is a respectable trade at a little over 50 days out, but the shorter November trade is less risky and clearly superior in this case with the same return (roughly one half the %return in roughly one half the time). So why take the additional risk? Pull your money out and make a best investment decision again next month.
If further explanation of the method used in this article is needed, there is solid covered call example on the PowerOptions website.
Join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy.
PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute a covered call investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing covered call options positions.
[tags]covered call example, covered call investing, covered call investment strategy, covered call options, covered call rules of thumb, investment strategy, option income, poweroptions, stock options, Delta Petroleum[/tags]