• 4 minutes Ten Years of Plunging Solar Prices
  • 7 minutes Hydrogen Capable Natural Gas Turbines
  • 10 minutes World looks on in horror as Trump flails over pandemic despite claims US leads way
  • 13 minutes Large gas belt discovered in China
  • 36 mins COVID 19 May Be Less Deadly Than Flu Study Finds
  • 58 mins Would bashing China solve all the problems of the United States
  • 4 hours Chicago Threatens To Condemn - Possibly Demolish - Churches Defying Lockdown
  • 2 hours Model 3 cheaper to buy than BMW 3 series.
  • 7 hours Yale University Epidemiologist Publishes Paper on Major Benefits of Hydroxchloroquine for High-risk Outpatients. Quacksalvers like Fauci should put lives ahead of Politics
  • 2 hours Let’s Try This....
  • 32 mins Incompetent "Journalists"
  • 36 mins Iran's first oil tanker has arrived near Venezuela
  • 7 hours HVDC Cheaper Than Low-carbon Natural Gas
  • 1 hour Pompeo's Hong Kong
  • 7 hours Oil and Gas After COVID-19
  • 11 hours 60 mph electric mopeds
  • 11 hours China to Impose Dictatorship on Hong Kong
  • 11 hours Nothing can shake AMLO’s fossil-fuel fixation
Another OPEC Producer Looks To Back The Aramco IPO

Another OPEC Producer Looks To Back The Aramco IPO

As the world’s largest initial…

The Worst Oil Trades Ever Made

The Worst Oil Trades Ever Made

Wall Street is full of…

Alan Ellman

Alan Ellman

Qualifications/Background Information: 1- Authored three books on Covered Call Writing. 2- Produced a 4-part DVD and CD Series based on stock & option seminars 3-…

More Info

Premium Content

Using Oil & Gas Securities Plus Stock Options to Generate Monthly Cash Flow

One way to create a monthly cash flow is to purchase oil and gas securities and then sell stock options against these equities. These securities can be in the form of stocks or exchange-traded funds (ETFs). An ETF is a security that tracks an index or a basket of stocks like an index fund but trades like a stock. They provide the diversification of an index fund but can be bought and sold throughout the trading day. In this new investing section of Oilprice.com I will periodically highlight a stock or ETF and show how it can be utilized along with stock options to generate a monthly cash flow.

Today I am focusing in on UNG (United States Natural Gas Fund Lp). Let’s first look at a price chart of this ETF and notice how after a severe price decline and then a period of consolidation the trend has been bullish:

UNG Fund

As of October 12, 2012 UNG was priced @ $23.16 per share. If we are bullish on natural gas we can purchase shares of UNG and then sell stock options to boost our income flow. A stock option gives the holder (not us, we are the sellers) the right, but not the obligation, to purchase our shares from us at a price we determine (the “strike price”), by a date we determine (the expiration date). In return for undertaking this obligation, we receive a cash premium that the market determines. Let’s say we purchase @ $23.16 and are willing to sell for $24 over the next one month. To determine how much we will get paid for undertaking this obligation we must access an options chain as shown below:

UNG Call Options

The quote of $0.67 is per share and each options contract consists of 100 shares. The November contracts expire on the 16th, about one month away. Let’s do some math (stay awake now!):

Buy 1000 shares @ $23.16 = $23,160.00 (our investment or cost basis)
Sell 10 contracts @ $67 = $670 = 2.9%, 1-month return
If share price goes to $24 or higher we gain an additional $0.84 per share = $840
Possible 1-month return = $670 + $840 = $1510
$1510/$23,160 = 6.5%, 1-month return

If the share price does not reach $24, the option will expire worthless as we keep our shares and premium and are free to sell another option the next month, generating a monthly cash flow. I will be showing different securities and different trading scenarios in future articles.

By. Alan Ellman

(alan@thebluecollarinvestor.com)
www.thebluecollarinvestor.com


Download The Free Oilprice App Today

Back to homepage





Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News