KMI August 15th Options Begin Trading

An investor purchasing Kinder Morgan (KMI) shares at $27.40 and selling a covered call at the $30.00 strike price expiring August 15th could realize a 10.55% return if the stock is called away, inclusive of the premium; however, if the contract expires worthless, which analytical data suggests has a 71% probability, the investor would realize a 1.06% boost, or 6.66% annualized, on top of any stock appreciation.

Analysis

The article details a specific covered call strategy for Kinder Morgan Inc. (KMI), where shares purchased at the current price of $27.40 are coupled with the sale of an August 15th call option with a $30.00 strike price, yielding a premium of 29 cents. This strategy offers a potential total return of 10.55%, excluding dividends, if KMI stock is called away at expiration. The $30.00 strike price represents an approximate 9% premium over the current stock price. Analytical data suggests a 71% probability that this out-of-the-money call option will expire worthless. In such an event, the investor would retain both their shares and the collected premium, resulting in a 1.06% immediate return enhancement, referred to as YieldBoost, which annualizes to 6.66%. A critical consideration is the capped upside; significant share price appreciation beyond $30.00 would not benefit the investor further. The implied volatility for this option contract is stated at 35%, which is notably higher than KMI's trailing twelve-month actual volatility of 26%, potentially indicating that the option premium compensates for an expected increase in price movement or is relatively rich.

Key Decisions for Investors

• Investors might consider this KMI covered call strategy for income generation, weighing the 10.55% potential return if the stock is called away against the 71% probability of retaining shares and earning a 1.06% premium boost by August 15th.
• The divergence between the 35% implied volatility and 26% historical volatility suggests option sellers may be receiving favorable premiums, although this could also reflect market anticipation of increased stock price volatility for KMI.
• A thorough review of Kinder Morgan's fundamentals and recent trading history is crucial to assess the likelihood of the stock price remaining below or exceeding the $30.00 strike price to determine if the capped upside is an acceptable trade-off for the premium income.