Last month on September 15, we did a buy write on shares of Bermuda-based natural gas shipping company Flex LNG Ltd. (FLNG) in Forbes Premium Income Report. The call options that we sold expired worthless last Friday, so we still own the stock at a $32.35 cost basis for an unrealized gain of 3.9% over the past 40 days. Taking your profit by selling the stock might be what you’d like to do, but if you want to earn more premium, writing November $34.50 calls for @ $1.80 or higher looks appealing. If you have no involvement with FLNG, a buy write (simultaneous stock purchase and call options sale) is a compelling trade that offers 6% return potential for a little more than three weeks of risk.
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Flex LNG Ltd. (FLNG) – Buy Write
Buy 100 FLNG
Sell to Open 1 November 18 $34.50 Call
Execute for Net Debit of $32.50 or lower
Liquefied natural gas shipping companies continue to enjoy a brisk business transporting LNG to Europe, which is building inventories of natural gas for the winter in the face of shutdowns of gas pipelines from Russia. Norwegian-managed and Bermuda-based Flex LNG Ltd. (FLNG) owns a fleet of thirteen state-of-the-art LNG carriers, and all of its vessels are booked solid through mid-2024.
Revenue this year for FLNG is expected to grow less than 1% and earnings are forecast to dip 2.7% to $2.92 per share.
At 9.9 times the next 12 months of expected earnings, FLNG trades 14% below its five-year average P/E ratio of 11.5.
With a yield north of 9%, FLNG is a prodigious dividend payer, including special dividends like the one for $0.50 per share earlier this year.
Here is the buy write: Buy 100 FLNG, and sell to open one contract of $34.50 November 18 calls for a net debit (stock price minus options premium) of $32.50 or lower.
For the buy write described above, if FLNG closes above $34.50 in 23 days, shares would automatically be sold at $34.50, producing a return of $2.00 per share on $32.50 at risk, or 6.15%. That would be 97.6% on an annualized basis. If FLNG closes at or below $34.50 at expiration, you would still own the stock at a cost basis of $32.50 per share.
Options income for this trade: We earn $180 selling 1 FLNG November 18 $34.50 call contract. Click here for updated bid-ask and return characteristics.
NOTE: Forbes Premium Income Report is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any assets or securities mentioned or recommended. We do not guarantee that investments mentioned in this newsletter will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. John Dobosz and members of the staff of Forbes Premium Income Report may hold positions in some or all the assets/securities listed. Copyright 2022 by Forbes Media LLC.