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How to Possibly Earn a Huge 158% Payout with EOG Stock Call Spreads
It’s been said that elections have consequences. However, in the case of the second term of President-elect Donald J. Trump, his surprise victory could offer a huge — or is that yuge? — payout for EOG Resources (EOG) investors. As a hydrocarbon upstream specialist, EOG stock should fundamentally benefit from Trump’s public support for U.S. oil production. Therefore, I am bullish on the oil and gas producer.
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Another reason to consider EOG stock is its financial performance. For the third quarter, the underlying company posted solid results, delivering earnings per share of $2.89, beating the estimate calling for $2.78. On the sales front, a total of $5.89 billion was slightly off from expectations of $6 billion. However, management emphasized its “outstanding execution” across its multi-basin portfolio, noting in particular strong volumes and price realizations.
With the political tailwind of an oil-friendly presidential administration, those likely aren’t just empty corporate statements. Trump could potentially extend a lifeline to legacy automakers, which in turn may spur more incentives for domestic fossil-fuel production. With this backdrop, EOG stock appears compelling. For those who believe the same, specialized options strategies can help deliver dramatic returns.
The Power of the Bull Call Spread
Typically, bullish retail investors adopt the tried-and-true method of simply buying their target security in the open market. The idea here is quite intuitive: buy low and eventually sell high. However, it can take a long time — especially for an established entity like EOG stock — to move significantly higher. It’s here that many speculators turn to call options, which provide the leverage of 100 shares.
However, one of the main challenges of call options is that “realistic” calls — that is, calls that are likely to be profitable prior to expiration — can be quite expensive due to the premiums charged. In technical terms, the investor must pay a debit to buy the desired call. For options to break even, the underlying security must rise to the listed strike price plus the premium paid.
An alternative approach is to consider the Bull Call spread. This trade is very similar to buying a call option. However, the difference is that you also simultaneously sell a call at a higher strike. Certainly, the sale of the call caps your maximum profitability potential. At the same time, the credit (income) received from the short call can help offset some of the debit paid for your long call.
Deciding Which Call Spread to Consider
For a heavily traded optionable security like EOG stock, prospective traders have multiple strike-price combinations to consider. Naturally, a question arises about which call spread to buy. To figure this out, one should establish a baseline trade. In other words, find a relatively conservative trade that is likely to be profitable (assuming the underlying thesis is correct) but still offers enough reward to be interesting.
Now, to find this baseline, you should calculate the market’s expected movement for the security. You can do this by conducting a stochastic analysis. The quick-and-dirty approach is as follows: multiply the share price, the implied volatility (IV) of the target options chain, and the time decay adjustment. The end result gives you the expected movement of the stock to the upside or downside.
Let’s look at the options chain expiring Dec. 20 as an example. Here, the average IV comes in at 24.86%. The time decay adjustment lands at 30.52. With a share price following Friday’s close of $134.56, the product of the three metrics is almost $10.21. That means EOG stock may rise to $144.77 or slip to $124.35. Since we’re bullish, we’re obviously focusing on the upper price target.
Putting It All Together
Essentially, the market assumes that under ideal conditions, EOG stock may rise to $144.77. However, in actuality, the figure could be higher or lower. Since we’re looking to first establish a baseline trade, we should be conservative and downgrade this max price target when considering the short call strike price.
In my opinion, a solid baseline trade to consider is the 130/140 call spread for the options chain expiring Dec. 20. Here, EOG stock only needs to rise above $135.14 to break even. What’s more, the short call strike of $140 is reasonable (2.5% higher than Monday’s close). Traders will put $514 at risk for the chance to gain $486, implying a maximum payout of 94.6%.
However, if you really want to swing for the fences, you may consider the 135/140 call spread. The short call strike remains the same at $140. Thus, the difference is that the long strike rises to $135, boosting the breakeven threshold to $136.94. Still, since the long call is closer to the money, you would end up paying a smaller debit. Ultimately, there’s $194 at risk for the chance to gain $306, or a payout of 157.7%.
Wall Street’s Take on EOG Resources
Turning to Wall Street, EOG stock has a Moderate Buy consensus rating based on nine Buys, 11 Holds, and zero Sell ratings. The average EOG price target is $145.79, implying 7% upside potential.
The Takeaway: Utilize EOG Stock Call Options to Fuel Your Speculation
EOG Resources presents a compelling opportunity for traders seeking to leverage favorable political and economic tailwinds. With Donald Trump’s second term poised to emphasize domestic fossil fuel production, EOG stands well-positioned to capitalize on heightened energy demand and potentially favorable policy shifts. When paired with its strong financial performance and resilient multi-basin portfolio, the bullish case for EOG stock gains significant weight.
For options traders, the Bull Call spread offers a flexible, cost-effective way to amplify potential returns. Whether you opt for a more conservative setup or decide to take a bigger swing, these strategies align well with EOG’s fundamentals and the broader macro narrative. As always, prudent risk management and careful execution are key to turning these opportunities into tangible gains.
