Writing Scorpio Tankers Call Offers 6.5% Return

As the underlying stock for our trades, Scorpio Tankers (STNG) is becoming a favorite, making us money on two bull put spreads in the past two months, and providing an unrealized profit of 8.8% on our August 4 buy write. The calls we wrote expired out of the money at expiration last Friday, so we still own 100 shares of STNG at a cost basis of $37.45 per share.

If you partook in the August 4 buy write, you could take your profits today by selling the stock at current prices near $40.70 , but I propose writing $41 covered calls that expire September 16. If you currently have nothing to do with Scorpio Tankers, buying the stock and selling these calls today has the potential to earn 6.5% over the next 24 days. See details in the buy write below.

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Scorpio Tankers (STNG) – Buy Write

Buy 100 STNG

Sell to Open 1 September 16 $41 Call

Execute for Net Debit of $38.50 or lower

Covered Call Write (If you already own 100 STNG)

Sell to Open 1 September 16 $41 Call @ $2.25

Monaco-based Scorpio Tankers (STNG) provides marine transportation of crude oil and petroleum products through a fleet of 131 wholly-owned, financed/leased, and chartered tankers. Revenue this year is expected to jump 138% to $1.28 billion and Scorpio is expected to earn $8.52 per share, a consensus earnings estimate that is up 69% in the past 30 days.

In terms of stock price, STNG has gained 150% in the past six months.

The next earnings report is due November 11, and about the same time there will be an ex-dividend date for a $0.10 per share payout.

If you already own STNG, for every 100 shares that you own, sell to open one contract of $41 September 16 calls for at least $2.25.

If you do not already own STNG, here is the buy write: Buy 100 STNG ($40.66 current price) and sell to open one contract of $41 September 16 calls. Use a net debit of $38.50 or lower for the combined buy write.

If STNG closes above $41 at expiration, we would be assigned and compelled to sell our shares at $41.00. This would produce a profit of $2.50 per share on $38.50 at risk. That’s 6.5% or, with 24 days of risk, 98.7% on an annualized basis. If STNG closes at or below $41 on August 16, we will still own the stock at a cost basis of $38.50 per share, reflecting today’s premium.

Options income for this trade: We earn $226 selling 1 STNG September 16 $41 call contract. Click here for updated bid-ask and return characteristics.

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.