Downstream Energy Buy Write Offers 11% Return Potential

Delek US Holdings
DK
(DK) has a decent 2.7% dividend yield, but it’s not the payout we are interested in with this options-selling trade. From the premium earned, and the capital gains potential, we have to possibility of earning 11% over the next 37 days.

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Delek US Holdings (DK) – Buy Write

Buy 100 DK

Sell to Open 1 October 21 $29.80 Call

Execute for Net Debit of $26.85 or lower

Brentwood, Tenn.-based Delek US Holdings (DK) is a downstream energy company with businesses that include petroleum refining, logistics, convenience stores, asphalt, and renewables. Revenue this year is expected to jump 72% to $18.3 billion, and earnings are expected come in at $8.47 per share, compared to a loss of $3.03 per share in 2021.

The next earnings report and the next ex-dividend date are both in November.

Here is the buy write: Buy 100 DK ($28.35 current price), and sell to open one contract of $29.80 October 21 calls. Execute the trade for a net debit of $26.85 or lower. The net debit is the maximum amount you are willing to pay for one share of stock and selling one call option against it.

If DK closes above $29.80 at expiration on October 21, you would be compelled to sell at that price, and you’d earn $3.00 per share on $26.80 at risk, or 11.2%. On an annualized basis, that would be 110% for the 37-day holding period. If DK closes at or below $29.80 at expiration, you will still own the stock at a cost basis of $26.80 per share.

Options income for this trade: You earn $150 selling 1 DK October 21 $29.80 call contract. Click here for updated bid-ask and return characteristics.

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John Dobosz is editor of Forbes Dividend Investor, which provides a weekly portfolio of high-yielding, value-priced income stocks, REITs and MLPs, and Forbes Premium Income Report, which sends out options-selling trade recommendations on two dividend-paying stocks every Tuesday and Thursday.

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.