economy
Gulf uncertainty is creating ‘win, win’ strategy with Chevron and other oil majors
With options premiums still elevated due to the military conflict in the Gulf, selling puts on an energy major posting record free cash flow offers a rare opportunity.
TL;DR
- Selling puts on Chevron offers a high probability of profit and approximately 14% annualized return.
- Chevron is trading at less than 14 times forward earnings and generated over $18 billion in free cash flow last quarter.
- Elevated options premiums are due to Gulf conflict uncertainty and disruptions in the Strait of Hormuz.
- The company is realizing Hess acquisition synergies faster than guided.
- Chevron is moving its corporate headquarters to Houston from California and may close California refineries.
- The proposed trade involves selling the October $180 put for $4.75, with a probability of profit above 72%.
- If assigned, the effective cost basis is $175.25, about 7.5% below the current price.