In article “El Paso (EP) – Natural Gas – Covered Calls” we zeroed in on El Paso (EP) in light of Texas Utilities (TXU) decision to scrap coal based electrical power generating plants. With less coal in the power-generating picture, natural gas could be a piece of the future electrical power generation picture.
Texas Utilities recently announced it plans to forge ahead with nuclear power plants to replace the scrapped coal plants, but nuclear power plants take many years to construct, so El Paso with its natural gas is still sitting in a sweet spot.
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In the article on El Paso, we selected a covered calls position for El Paso and the position was fully profitable generating a return of 5.4%. The 5.4% return was experienced in only 51 days.
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Competitors:
Competitors for EP include: DCP Midstream Partners LP (DPM), Exxon Mobil Corp. (XOM), Williams Companies Inc. (WMB), Boardwalk Pipeline Partners LP (BWP), ONEOK Partners L.P. (OKS), and TEPPCO Partners LP (TPP).
We executed another search for covered calls positions for El Paso using PowerOptions stock options search tools and discovered the following position.
| PowerOptions covered call search | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
Option Sym |
Expire &Strike |
Opt Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd. |
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| EP | 15.2 | EPGQ | 07 JUL 16 (85) | 0.35 | 2.3 | 2.4 | 7.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The attractive covered calls positions found for El Paso were few and far between. We had to go all the way out to July of 2007 to find an attractive position.
The out-of-the-money covered call position has downside protection of 2.3%, has a potential return of 2.4% if the stock price of EP remains unchanged at stock options expiration and has a potential return of 7.8% if the stock price of EP increases to or above the $16 strike price of the stock options at expiration.
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[tags] BWP, Boardwalk Pipeline Partners LP, DPM, DCP Midstream Partners LP, OKS, ONEOK Partners L.P., TPP, TEPPCO Partners LP, WMB, Williams Companies Inc., XOM, Exxon Mobil Corp., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]