Buy Write On Green Energy Electric Company Offers 49-Day, 48% Annualized Return Potential

There are only two stock market sectors posting positive year-to-date total returns. Up 46.5%, energy is the big winner, but utilities are also higher by 6.2% since the start of 2022.

We dive into utilities with this buy write trade, but the company whose shares we use as the underlying stock stands out from others on several fronts, including geographic diversification, its focus on the wholesale electricity market, and perhaps most importantly the large percentage of power that it generates from renewables. The Inflation Reduction Act is packed with tax breaks and other incentives for the renewable energy business, and its passage last month has given stocks like this one a big boost over the past several weeks. In fact, this stock has broken away from the pack, gaining 17% in the past month, compared to a 1.5% move higher for the overall sector.

This trade hold the potential for a 6.5% return over the next 49 days.

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AES Corp. (AES) – Buy Write

Buy 100 AES

Sell to Open 1 October 21 $27 Call

Execute for Net Debit of $25.35 or lower

Arlington, Va.-based AES Corp. (AES) is AES is a global power company operating in 14 countries and four continents. Only 29% of revenue last year was generated in the United States; 21% of revenue came from Chile, 10% from the Dominican Republic, and the remaining 41% came from 11 other countries.

What makes AES stand out is the composition of energy sources in its generation portfolio. As of year-end 2021 consists, with more than 31 gigawatts of generation, the mix was tilted heavily toward renewables (43%), with natural gas (32%), coal (23%), and oil (2%) making up the remainder. AES has 3.5 gigawatts of generation under construction.

Although its roots are in independent power production, AES is also a smaller player in retail electric delivery with majority ownership in six electric utilities distributing power to 2.6 million customers.

Revenue this year is expected to grow 3.2% to $11.5 billion, with earnings up 6.4% to $1.62 per share.

There is no dividend until the final week of October and the next earnings report is the first week of November.

Here is the buy write: Buy 100 AES ($26.10 current price), and sell to open one contract of $27 October 21 calls. Placing your order as a combined buy write, use a net debit (stock price minus premium) of $25.35 or lower.

If AES closes above $27 at expiration, we would be assigned and our shares automatically sold. We would earn $1.65 per share on $25.35 at risk, or 6.5%. Over a 49-day period, that would be an annualized return of 48.5%.

If AES closes at or below $27.00 on October 21, we would still own the stock at a cost basis of $25.35 per share.

Options income for this trade: We earn $75 selling 1 AES October 21 $27 call contract. Click here for updated bid-ask and return characteristics.

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NOTE: Forbes Premium Income Report is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any assets or securities mentioned or recommended. We do not guarantee that investments mentioned in this newsletter will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. John Dobosz and members of the staff of Forbes Premium Income Report may hold positions in some or all the assets/securities listed. Copyright 2022 by Forbes Media LLC.