I just sold a cash secured put contract for Valero Energy. Why Valero? Thanks for asking ;-). Truth be told, there’s not much value out there in the marketplace. Valero Energy is a stock that I’ve owned in the past and it’s been on my watchlist for the past year. I only sell cash secured puts on stocks that I wouldn’t mind having in my portfolio.
Valero Energy fits this criteria. Valero Energy is trading at a low P/E Ratio of 8.78. VLO also has a decent dividend payout ratio of 4.42%, with a dividend coverage ratio of 291%. Even though I like what I see in Valero Energy, I still think the stock is a bit expensive. Because of this, VLO is a perfect candidate for a cash secured put.
Valero Energy Put Contract Details
The Valero Energy put contract details are as follows.
- Contract length: 28 Days
- Strike Price: $53.00
- Premium: $0.91
- Annualized Rate of Return: 19.99%
- Profit: $81.29
Additional details of this options trade are shown in the image below. As shown, My break even price if this contract gets assigned to me is $52.09 per share. This means, even if the stock drops below my strike price of $53.00, I only lose money at a price below $52.09. My goal of all cash secured puts is to have the contract expire worthless. However, if VLO stock falls to $52.09, I’d be happy to own 100 shares. The only risk to me is a major market collapse or unforeseen changes to Valero’s business that could cause a massive stock price drop. This is the risk involved when playing the options game.
If something drastic happens to Valero Energy or markets over the next 28 days, I still have options. I can take the stock at a loss and sell covered calls. I can also close my contract and sell another one with a later expiration date. This could save my trade, reduce my losses, or delay losses.