Many MLPs and most of the names in the oil sector have fallen hard with the fall in oil prices in the past few weeks. But there is a much safer way to generate income from the oil sector — and with yields much better than straight dividends. I’m talking about selling weekly options on some of the bigger oil stocks out there.
For the first trade, think simple, think (relatively) low-risk, think large premiums — think Chevron (NYSE:CVX). The stock is around $100.50 or more; you can sell a June Week 5 $97.50 put that expires this Friday and pocket about a four tenths of a percent return. Do this every week for more than 20% a year. Other names to look at with weekly options include Exxon (NYSE:XOM), ConocoPhillips (NYSE:COP) and, in a more oblique play, Transocean (NYSE:RIG).
For the second trade, take a look at the other side to oil — the devices that use oil and gasoline. While U.S. automakers have been beaten down, their numbers in the U.S. are great and I believe all the bad news about Europe is priced into their stocks. A stock with compelling premiums on weekly options is Ford (NYSE:F). You can get $0.13 for selling a June Week 5 $10 put on a $10 stock. That is a potential 1.3% return in a week, a 65% yearly return.
Michael Shulman is editor of Options Income Blue Print. Learn more about trading weekly options in this free short video.