Login

Log In

Enter your username and password below

Silver Lining Uncovered in Energy Crash

The devastating rout in energy stocks has a silver lining…

Yet many people playing the stock market right now don’t have the skills and knowledge needed to take advantage…

You see, there are some mega-high-quality stocks in the energy sector that are suffering from lower oil and gas prices.

And by using this little-known (yet deceptively simple) strategy – you could unlock one of the best income opportunities I’ve seen since the 2008-2009 crash.

Opportunity Lies in the Rubble

Today, most investors are familiar with options trading. This wasn’t the case just a decade ago, but now options are a big part of mainstream investing.

Yet, there’s still one options strategy that eludes the general investing public. A fact that mystifies me because it can be so lucrative.

I’m talking about put option-selling.

This strategy has gotten a bad rap over the years because people just don’t know 1) what put-selling is 2) when to use it, or 3) exactly how it’s done.

Let’s briefly review the first part…

The Benefits of Selling Puts

Essentially, by selling a put option, you receive cash up front from the option buyer.

This is money you never have to pay back.

In return, you become obligated to buy the underlying shares at the option’s strike price… but only if the shares close at or below that price by the time the option expires.

So if shares never trade down to the strike price level, there’s nothing you need to do. That cash you originally pocketed just looks even sweeter.

At any time before expiration, you also have the opportunity to buy the put option back. This releases you from the obligation. Plus, if the option price is lower than when you sold it, you just booked a tidy profit!

Of course, since there’s a chance you could own the stock at some point, the key is to sell puts on quality companies.

Take Chesapeake Energy (CHK), for example.

Although shares have been beaten down, it’s a great company if you’re looking to the future.

It’s paying down debt, owns very high-quality assets, is hedging a good chunk of its output at higher prices, and is buying back shares.

Currently the shares are trading between $17 and $20, depending on the day of the week and how volatile energy prices are. By selling puts right now, there’s a way for you to purchase shares at a steep discount – over 45%.

And based on the current bid prices of the put option, you could receive an instant $530 (depending on the amount of contracts).

Talk about a silver lining to the energy crash!

Wall Street Daily’s Chief Options Analyst, Lee Lowell, is working on an article now that’ll cover a bit more about why and when you should be selling put options. Look for it to hit your inbox this week.

[cfsp name=”imt-webinar-ed-mentions”]

Ultimately, if executed correctly, put-selling can be one of the best ways to generate income. And in the case of Chesapeake, it can allow you to (potentially) purchase a solid company at even better prices than we’re seeing today.

And “the chase” continues,

Karim Rahemtulla