Chevron : High Return On Capital Trade

 

Investors with smaller accounts are very mindful of their capital restraints and want to ensure that they are getting the maximum return on their invested capital. Here is a setup I like in Chevron (NYSE:CVX) at present which is basically a covered call trade but instead of using stocks – we use options.

Volatility Is On The Floor


Technicals are way oversold

Trade Set Up:

By buying the September $100 call and selling the July $110 call, the trader is guaranteed that any quick up move will be profitable as the width between the strikes ($1000) + the credit received for the sold option ($130) is greater than the cost of the long option ($915). This trade setup is very similar to selling covered calls (against long stock) but needs much less capital requirements. All the risk is to the downside but Chevron looks like it will follow crude oil higher here. Volatility is mean reverting meaning the option prices should over time become more expensive as volatility rises. This will suit this particular trade setup.

 

 

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