Options trades: HYG, CVX & D
The continued weakness and increasing volatility in the market this week triggered several more of my limit orders to sell put options on selected stocks. Here are the latest short put positions that I’ve initiated:
Chevron [[CVX]] – On Thursday I sold some March 55-strike puts against CVX as the stock – and the market in general – pulled back from its recent highs:
Currently trading at about $68 and yielding 4%, the shares of this large integrated oil and gas company are currently experiencing short-term weakness in what appears to be a (barely) positive intermediate-term trend. A drop below about $65 would change this picture to something more neutral/negative.
From a valuation standpoint, CVX could be viewed as roughly fairly valued here. Its dividend should be safe and has had a decent growth rate in recent years. My net cost basis if ultimately put the stock would be at under $54 per share, along with a nice corresponding dividend yield of 5%.
Dominion Resources [[D]] – On Thursday I sold some April 30-strike puts against D on weakness:
This electric utility operates in the northeast, mid-Atlantic, and Midwest regions of the U.S., and Texas. Currently trading at about $33.50 and yielding a little over 5%, the shares remain in an intermediate-term uptrend from their March lows – a picture that will become more neutral/negative if the stock drops below about $32.
D has a stable – though not necessarily consistently growing – dividend history, with a recent five-year dividend growth rate of about 4%-5%. Its shares could be viewed as roughly fairly valued to somewhat undervalued here, and would be even more so at the $29 level, which would be my net cost basis if ultimately put the stock.
iShares High Yield Corporate Bond ETF [[HYG]] – On Friday I sold a March 79-strike put against HYG as it opened lower along with the overall market:
I’ve been trying to sell puts against this exchange-traded fund (ETF) for some time, but this is the first time my limit order was triggered. HYG corresponds to an index of the most liquid U.S.-dollar-denominated high-yield corporate bonds sold in the U.S. and comprises about 50 issues, including those from companies like Chesapeake Energy, Dollar General, MGM Mirage, Steel Dynamics, Windstream and others.
HYG pays a monthly – though varying – dividend, with a current yield of about 10% at its current price of about $83-$84. Despite its recent sell-off, HYG remains in an intermediate-term uptrend. A move below the $78-$80 level would change this picture. I wouldn’t mind owning HYG at around the $75 level, which would be my net cost basis if ultimately put the shares.
