REN Covered Call 9.12.2013

In Q2 this year, the company’s average production was 13,107 BPOD, 78 percent of which was crude oil.  Resolute’s production assets are based in North America, so there is little risk from exposure to  unrest in the Middle East or other disruptions of a geo-political nature.  Included in these assets are operations in North Dakota’s Baaken reserve.

Yesterday, we saw Paper sell 2,500 REN Dec 10 Puts for $1.80 (27 times unusual volume).  By implementing a covered call strategy, or a ‘buy-write,’ a trader is synthetically short a put.  

To set up this covered call strategy a trader is going to buy 100 shares of stock at $8.30 for every REN Dec 10 Call sold at $0.20. This trade is profitable anywhere above $8.10 and if the stock closes above $10.00 on expiration this trade will net an annualized return of 97.5%.REN_Covered_Call.png