Potential 41% Annualized Return In The Pipeline With Kinder Morgan Buy Write

Energy infrastructure company Kinder Morgan (KMI) has been a cash machine for us on 12 prior engagements writing puts and covered calls on the stock since 2014. It’s not an MLP, although the pipeline operator is a dividend gusher. This trade does not involve a dividend, but it does offer the potential to earn a 41% annualized return through October 14.

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Kinder Morgan (KMI) – Buy Write

Buy 300 KMI

Sell to Open 3 October 14 (weekly) $18 Calls

Execute for Net Debit of $17.35 or lower

Founded in 2006 by Richard D. Kinder and William V. Morgan, Houston, Tex.-based Kinder Morgan (KMI) operates more than 70,000 miles of pipelines that transport natural gas, crude oil, carbon dioxide, gasoline, and other refined products and chemicals. Its also handles bulk materials like ethanol, coal, petroleum coke and steel. Kinder Morgan operates Canada’s Trans Mountain pipeline system which transports crude oil and refined petroleum products from Edmonton, Alberta to terminals and refineries in British Columbia and Washington state.

Kinder Morgan is expected to grow revenue 7.9% to $17.9 billion this year, with GAAP earnings per share up 57% to $1.23 per share. At 14.6 times earnings, KMI trades not far above its five-year average P/E of 13.9.

The company posts quarterly results October 20 and the next ex-dividend date will be at the end of October.

Here is the buy write: Buy 300 KMI ($18.25 current price), and sell to open 3 contracts of $18.50 October 14 (weekly) calls for a net debit (stock price minus options premium) of $17.80 or lower.

If KMI closes above $18.50 at expiration on October 14, our shares would be sold automatically and we would earn $0.70 per share on $17.80 at risk, or 3.93%. That would be an annualized return of 41% over a holding period of 35 days.

If KMI closes at or below $18.50 on October 14, we’ll still own it at a cost basis of $17.80 per share, reflecting today’s premium.

Options income for this trade: We earn $135 selling 3 KMI October 14 $18.50 call contracts. 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.