If the oil is at a high limit, does it make sense to shorten the chevron and rust?

Covered calls $200 strike for Chevron Corporation (CVX) The stock, up 5.3%, is yielding 2.1% in one month. Additionally, a 10% higher CVX call strike rate yields 1.0% over a month. This may mean out-of-the-money (OTM) puts and calls for investors. This article will show why.

CVX closed on time $189.94 on Friday, March 6. It is slightly higher than February 27, only +1.7%, before the start of the Iran war, when CVX closed at $186.76. So, is CVX stock nearing a peak?

I discussed shorting out-of-the-money CVX (OTM) puts and calls after Chevron released its Q4 earnings and cash flow, as well as raised less-than-expected dividends (Feb. 1 Barchart, “Chevron Raises Its Profit – But It’s Less Than Expected – Is CVX Stock Fully Worth It?‘).

My price target (PT) was $170 based on cash flow, and analysts had PTs ranging from $177 to $200. Since then, oil prices have risen to around $90 per barrel. This could significantly increase Chevron’s future cash flow.

Since then, analysts have raised their PTs, but they are still below today’s stock price. For example, 26 analysts surveyed by Yahoo! Tax has an average PT of $185.92. This is lower than the March 6 closing price of $189.94.

This is rare, because analysts usually have high PT. For example, on February 1, the PT average was $177.67, which is more than the price of $176.90.

It depends on how long the Iran war will last and whether oil reserves are running low. However, much of this concern has already been discounted by the market.

That’s why it makes sense to take advantage of Chevron’s high option premiums.

It sees an expiration date of April 17, 2026. For example, d $200.00 The call price, which is +5.30% higher than Friday’s close, still has a midpoint premium of $4.05.

This means that short sellers covered by these calls can immediately get a month’s worth of profit. 2.13%For short-term coverage after buying 100 shares at $189.94:

$405/$18,994 -1 = 0.0213 = 2.13% yield

In addition, if CVX hits $200 or higher by April 17, investors collect an additional 5.3%:

$20,000 / $18,994 -1 = 5.2964%

So, all returns are contingent +7.4264% Next month.

For investors less willing to sell their shares at $200.00, the $210 year price has a midpoint premium of approximately $2.00, providing a one-month yield of 1.0%:

$1.96/$189.94 = 1.03%

Note that the delta ratio is lower at 18.4% vs. 32.8% for the $200 year, indicating lower risk of CVX rising to $210 on or before April 17th.

This means that a short seller who makes both calls can average a 1.58% 40-day yield, with another possibility 7.93% Up if CVX rises to $207.50.

At the same time, holding money abroad also has higher yields. The only risk here is that an investor should buy Chevron shares (not sell them like covered calls) if CVX falls below the strike price.

For example, the April 17, 2026, expiration period shows that the $180.00 strike price, which is 5.23% lower than Friday, has a midpoint premium of $3.63.

This means that an investor who saves $18,000 (i.e. less than the covered call purchase) can collect $363. This is lower than the $403 collected by the covered call play. But the yield is the same because the cost is lower:

$363/$18,000 -1 = 0.020167 = 2.0167%

It is close to the same distance (5.30%) from Friday’s closing price with a covered call yield of 2.13%. However, the delta ratio is much lower at 28% compared to the 32% covered call play.

In addition, for more risk-averse investors, the $175.00 put offers a 1.45% Yield (ie, $2.53/$175.00) at very low delta – 20.7%.

One issue for investors shorting this short is that if CVX goes up, they don’t get any profit, like covered call players get. In addition, if CVX falls below the strike price, investors may end up with an unrealized loss. However, they will still own CVX shares.

The bottom line is that CVX covered call plays and out-of-the-money short plays have attractive yields. This can be attractive to investors who believe oil is at or near a peak.

As of the date of publication, Mark R. Heck, CFA held no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com