As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. This has been successful for our investors for years. Option selling offers another method to diversify investing strategies beyond traditional dividend investing. We have combined technical stock events with our strategy to identify high returns option selling opportunities. This income trade will generate a return above 8% using the forward month options.
Stock: H&E Equipment Services, Inc. (HEES) operates as an integrated equipment services company. The company rents, sells, and provides parts and service support for hi-lift or aerial work platform equipment, cranes, earthmoving equipment, and industrial lift trucks. It offers heavy construction and industrial equipment for rent on a daily, weekly, and monthly basis
A “Double Bottom” chart pattern has been detected on H&E Equipment Services Inc (HEES). This bullish signal indicates that the price may rise from the close of 21.90 to the range of 25. The pattern formed over 46 days which is roughly the period of time in which the target price range may be achieved. H&E Equipment Services Inc has a current support price of 19.89.
Strategy: We want to sell a covered call on HEES using the August 2017 22.5 Call. For each 100 shares of HEES stock you buy, sell one August 22.5 covered call option for a $20.70 ($21.90 – $1.20) debit or better. That’s potentially an 8.7% assigned return with a 5.8% downside protection. If you want more downside protection, you can purchase an August 17.5 PUT for less than $0.25 per option.
For PUT writers wanting to lower their cost of entering this position. You can sell an August 22.5 PUT option for $2.00. That’s a potential return of the return of 8.9%.
Investors should consider taking profits early as the stock price moves higher toward the $25 target price and exit if there is a pull back below support levels.
