Our mantra this week: Go with what you know.
It’s the Wall Street equivalent to dancing with the gal you brought to the dance.
In this case: Tesoro (NYSE:TSO), the best independent refiner in the U.S. and the number-one performing refining stock in the last six years.
Tesoro is an undervalued company and stock growing faster than the rest of the sector due to the company’s growing use of fracked oil, increasing their operating spreads and profits.
The stock sells at a multiple half of that of the S&P 500—real value—and is in a $110-$115 trading range. It’s hovering around $110 and change and now is a great time to buy shares and sell calls.
If you buy the shares now at $110.43 and sell the 111 call, you will get $1.75 in premium.
If you are called out you net $2.32 in a week—a return of capital of 2.1%, or 109% on an annualized basis.
If you are not called out, you have reduced your current cost basis to below the short-term support level of $110 and generated cash… and you can do it all over again next week, the week after, and so on.
Think about it.
Michael Shulman owns TSO shares and has sold calls.