Fracking – the process of cracking open shale formations to yield oil and gas, especially gas – is here, and is here big time. The direct plays are pretty much done – but Wall Street is now putting serious money into the secondary plays. The best, to my mind, is U.S. Steel (NYSE:X).
Pipeline construction in the US – funded projects – will rise 82% this year. No, I did not drop a decimal point. Drive US 81 through Pennsylvania and you will see truck after truck hauling pipe. High quality pipe made from high quality steel. And a lot of that steel is made by U.S. Steel.
The stock took a hit when world prices fell, shame on short term traders. It has steadily climbed back and no longer moves in tandem with the ups and downs of the market. And you can sell weekly puts on US Steel.
Recommendation: Take a look at this week’s $25 put. You can still get a decent price — actually, it is a great price. As I write this you could get a 0.68 % return. Small beer, right? Multiply that by fifty – that is how to best calculate the return on weekly options – and now you are in the 34% range.
The other way to do this is to buy the stock and sell the weekly call – fifty times a year. The numbers are surreal. Buy the stock at $25.80, then sell a $26.00 call for 40 cents (or $40 a contract), and you end up with a 77.5% annualized return if you are not called out and a 116% annualized return if you do get called out.
Drill baby drill is now frack baby frack. Think about it.
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