KMI: Close Above $18.50 = 41% Annualized Return in 35 Days
If KMI stock closes above $18.50 at expiration on October 14, our shares would be sold automatically. We would earn $0.70 per share on the $17.80 at risk, which would be an annualized return of 41% over a 35 day holding period.
We are bullish on Kinder Morgan (KMI) as an energy infrastructure company and believe it has been a cash machine for us on 12 prior engagements writing puts and covered calls on the stock since 2014. We believe the pipeline operator is a dividend gusher and this trade does not involve a dividend, but it does offer the potential to earn a 41% annualized return through October 14.
I think that Kinder Morgan is a great company and a buy write would be a great way to invest in them.
Buy 300 KMI
Sell to Open 3 October 14 (weekly) $18 Calls
Execute for Net Debit of $17.35 or lower
Kinder Morgan is one of the leading pipeline transportation companies in North America. It operates a vast network of pipelines that carry a variety of products, including natural gas, crude oil, carbon dioxide, gasoline, and refined chemicals. The company also transports bulk materials like coal, petroleum coke, and steel. In addition, 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 see strong growth this year, with revenue up 7.9% to $17.9 billion and earnings per share up 57% to $1.23. The stock is trading at a slightly higher multiple than its five-year average, but given the strong growth prospects, this looks like a reasonable price to pay.
The company's quarterly results are due out on October 20, and the next ex-dividend date will be at the end of October. This is an exciting time for the company and its shareholders, as we wait to see how the business has performed over the past few months.
Given that the current price of KMI is $18.25, the buy write would involve buying 300 shares and selling 3 contracts of $18.50 October 14 calls for a net debit of $17.80 or lower. This would provide the investor with downside protection in the event that the stock price falls, while still allowing for upside potential if the stock price increases.
If KMI closes above $18.50 at expiration on October 14, we would earn $0.70 per share on our $17.80 investment, 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 will still own the company at a cost basis of $17.80 per share, reflecting today's premium. This is a great opportunity for investors to get in on a company with a solid future.
It's always good to have options when it comes to trading stocks, and in this case, we're looking at a trade that could yield a healthy return of $180. By selling just three call contracts on stock for October 14th with a strike price of $18.50, we could see a nice profit come our way. Of course, it's always important to keep an eye on the bid-ask prices and return characteristics of any given trade, so be sure to click the link above for more information.
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