Instead of selling a put this week, we are going to write a covered call against our position in Buckeye Partners (NYSE: BPL), which was assigned to us in May when our short put position in it closed beneath our strike price of $40 (Note: If you do not currently own BPL, please disregard this alert).

Until recently, BPL was stuck in a trading range about $5 below our cost basis. Fortunately, over the past two weeks Buckeye has come roaring back to life on the strength of solid Q2 results and closed yesterday above $40 for the first time in three months. So, it’s time to write a covered call against it and turn this losing trade into a winner!

On February 21, we sold a $40 put option for a minimum premium of $0.43 per share. This time, we will get $1.25 (or more) for selling a covered call that expires on November 16 for total option premium of at least $1.68.

That works out to a 4.2% option premium yield over a 269-day holding period, which annualizes out to 5.7%. However, that does not include the $1.26 distribution payment declared last week that is payable on August 20. When that is factored into the equation, total cash flow from this transaction annualizes out to a minimum of 10% if you currently own BPL.

Buckeye has not yet declared its next distribution, but it’s possible we may also collect that one if it is payable to shareholders of record prior to the expiration date of this option and the stock is not called away from us until then. If that happens, then our annualized return works out to at least 14%. Not too shabby for a trade that was deep in the red less than a month ago.

All that said, given Buckeye’s 12%+ dividend yield you may prefer to hold onto to it rather than risk having it called away from you. If that is the case then please ignore this notice. But for those of you who want to collect that option premium now, here is how you do it.

How to Make the Trade:                   

• Trade: Sell to open the November 16, 2018, $40 Call option on BPL.
• Symbol: BPL181116C00040000
• Allocation: Sell one call for every 100 shares of BPL you would be pleased to sell at $40 per share.
• Prices:
  • Current Stock Price: $40.09
  • Limit Order Price: a credit of $1.25 per share or more.
  • Tell your broker: “I want to sell a covered call on Buckeye Partners(NYSE: BPL) stock. Specifically, I want to ‘sell to open’ one November $40 Call for a credit of $1.25 per share or more.”
• Further Instructions Regarding the Trade:
  • If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least $1.25 per share or more.
  • Place your limit order on a “good ’til canceled” (GTC) basis and be patient.