EOG Resources (EOG): Turning a 9.4% Target Into a 16.6% Annualised Return

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed EOG Resources (EOG): Turning a 9.4% Target Into a 16.6% Annualised Return. Here’s an excerpt from the episode:

So Toby, the first trade we’ve got is EOG. So when we set this trade, there were 74 days to expiration. This was July 6th.

And EOG had kind of dipped a little bit. There’s been a lot of volatility on the energy trade. This is a company I like a lot, really good margins, really good assets.

And so what we did was we targeted a relatively low annualised return. We targeted 9.4% annualised. We sold the 115 put for September.

We collected $2.15 of premium. The trade tied up $11,285. So one of the cool things about the value options letter is that even if we’re targeting a lower annualised, that doesn’t mean that you’re actually going to realise a lower annualised.

So the stock rallied with energy prices going up on fears of the war. And so we were able to close out this trade after 36 days and we had made 185 of the $215 target profit. So we ended up with a 16.6% annualised return. And so what we’re doing is we’re recycling cash, Toby, because look, our assets are finite. And so this trade’s tying up over $10,000. If we’ve already made most of the profit, why don’t we just take risk off the table and put it into another trade?

So that’s the first example.

[Tobias] Makes complete sense. Great stock too, energy resources.

[Tim] Oh, it’s fantastic. Fantastic company. And I mean, I would like to buy it at a lower price.

It’s kind of run up. The next one is actually the same, very similar trade, but this one was open on June 16th. So it’s actually the same strike that we had done that we did on the other trade with EOG.

This time we collected a little more premium because when we sold this one, it was 94 days to expiration. And so once again, we closed it the same day. We closed it yesterday where we made, we targeted an 8.1% annualised return and we ended up realising a 11.9% annualised return. So of the 235 of target profit, we closed that at with a profit of 205 bucks. So another good, solid trade. The premiums weren’t super high because the level of risk was not that high in our estimation and in the options markets estimation.

So sometimes like a really high quality company that has a good balance sheet, like a Berkshire Hathaway, like an EOG, you’re not going to see crazy premiums, but you can see it still ended up with a nice double digit return. So that’s trade number two.

[Tobias] Yeah. Good stuff. Thank you.

Good company EOG, well managed too.