ConocoPhillips (COP) stock is up over 3.0% today due to the Iran war turmoil. It could be time for existing shareholders to sell out-of-the-money (OTM) covered call options, given the 2.48% one-month yield for 5.5% higher strike prices.

COP is at $117.03, up $3.54 (+3.2%) today,  up $15.24 (+15%) from $101.79 from Feb. 2. As it stands, COP stock now has a 2.87% annual dividend yield.

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But this same yield can be made in one month by selling covered calls. This article will show how.

Target Prices

ConocoPhillips reported strong cash flow on Feb. 5 and the company said it would pay out 45% of its cash flow to shareholders in dividends and buybacks.

I showed in a Feb. 6 Barchart article that Conoco's cash flow could pay for its annual $3.36 dividend per share (DPS).

My price target in the article was between $112 and $126 per share, based on its historical dividend yield metrics. Moreover, analysts' price targets now range between $116.48 (Yahoo! Finance) and $136.16 (AnaChart.com).

So, COP stock could still have some upside.

In the Feb. 6 Barchart article ("ConocoPhillips Stock Still Looks Cheap - What's The Best Play Here?"), I discussed shorting the March 13 expiry put option at the $104 strike price.

That short-put play yielded 2.60% (i.e., $2.71 in premium received/$104.00 strike price). Today the premium has fallen to just 38 cents. So, it's been very successful and likely to expire worthless, giving the short-seller a full profit.

It might make sense for existing shareholders, or new buyers, to sell a new one-month put.

For example, the April 2, 2026, expiry $111.00 strike price put, which is 5.30% lower than today's price (i.e., “out-of-the-money” or OTM), has a $2.36 midpoint premium.

That gives a short-seller a one-month 2.13% yield (i.e., $2.36/$111.00 = 0.02126 = 2.13%).

But investors can actually make more shorting a similar distance (i.e., 5.30% away from the spot price) covered call option.

Note that in the same expiry period, the $123 call option has a midpoint premium of $3.64. This strike price is 4.94% away from the spot price (i.e., “out-of-the-money” or OTM). That means a covered call seller makes a one-month 3.11% yield (i.e., $3.64/$166.99 = 0.0311).

Moreover, the $124.00 strike price call option, 5.79% away from the spot trading price, has a covered call yield of 2.78% (i.e., $3.25/$116.99 = -.02778).

So, on average, if an investor does two covered calls at these strike prices, the distance would be 5.44% OTM, close to the short-put OTM distance of 5.30%.

However, these one-month covered call plays would average 2.945% (i.e., (2.78% + 3.11% /2)), which is significantly higher than the 2.13% short-put play yield for the same OTM distance.

Moreover, making a 2.95% yield shorting these covered calls over one month is better than the annual 2.87% yield owning COP shares.

That shows that this could be a profitable play for the next month.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com