As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. This has been successful for our investors for years. Option selling offers another method to diversify investing strategies beyond traditional dividend investing. We have combined technical stock events with our strategy to identify high returns option selling opportunities. This income trade will generate a return above 8% using the forward month options.
Stock: H&E Equipment Services, Inc. (HEES) operates as an integrated equipment services company. The company rents, sells, and provides parts and service support for hi-lift or aerial work platform equipment, cranes, earthmoving equipment, and industrial lift trucks. It offers heavy construction and industrial equipment for rent on a daily, weekly, and monthly basis
A “Double Bottom” chart pattern has been detected on H&E Equipment Services Inc (HEES). This bullish signal indicates that the price may rise from the close of 21.90 to the range of 25. The pattern formed over 46 days which is roughly the period of time in which the target price range may be achieved. H&E Equipment Services Inc has a current support price of 19.89.
Strategy: We want to sell a covered call on HEES using the August 2017 22.5 Call. For each 100 shares of HEES stock you buy, sell one August 22.5 covered call option for a $20.70 ($21.90 – $1.20) debit or better. That’s potentially a 8.7% assigned return with a 5.8% downside protection. If you want more downside protection, you can purchase an August 17.5 PUT for less than $0.25 per option.
For PUT writers wanting to lower their cost of entering this position. You can sell a August 22.5 PUT option for $2.00. That’s a potential return of return of 8.9%.
Investors should consider taking profits early as the stock price moves higher toward the $25 target price and exit if there is a pull back below support levels..
This is a higher risk trade than we normally place in the Monthly Income Report. However, this is a nice setup with a positive merger announcement, positive technical confirmation and increased premium from selling options for income.
H&E Equipment Services to Acquire Neff Corporation to Create Leading Equipment Rental Company
The acquisition will nearly double the number of H&E branches, from 78 to 147, within H&E’s existing footprint in the strategically important Gulf Coast, Mid-Atlantic, Southeast and West Coast regions. Both H&E’s and Neff’s customers will benefit from best-in-class practices and a wide range of equipment in more locations.
H&E estimates the acquisition will create $25 to $30 million of synergies annually related to corporate overhead, systems and operational efficiencies, as well as scale benefits for equipment purchases.
The acquisition of Neff
is expected to generate in excess of $800 million of gross tax assets for H&E arising from a step-up in the basis of certain of Neff’s assets.
Private investment funds managed by Wayzata Investment Partners LLC holding approximately 62.7% of the outstanding common shares of Neff have executed a written consent to approve the transaction, thereby providing the required stockholder approval for the transaction.
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