Investing Smart In Brookfield Infrastructure Partners With Options

(Source: Option Generator Research)

(Source: Option Generator Research)

Below, you can find the P&L per one lot (1 put and 1 call contract) at expiration in March 2021.

(Source: Option Generator Research)

Bullish Option Strategy

If you are bullish on BIP, you can take a look at the following setup:

  • Sell the $50 put expiring in March 2021 (for $10.3) (cash-secured).
  • Sell the $50 call expiring in March 2021 (for $1.20).

(Source: Option Generator Research)

(Source: Option Generator Research)

(Source: Option Generator Research)

In-The-Money Covered Call Option Strategy

Let's take a look at an in-the-money covered call strategy:

  • Buying 100 shares of BIP.
  • Selling the March 2021 in-the-money covered call for $6.
  • Dividend capture of 3 x $48.5.

Compared to the sideways strategy, the in-the-money covered call write does not allow for 20+ % returns, but holds a 11%-12% gain as longs as we stay above the strike price of $40. Foreign investors - for example, Belgians - would see their final return decrease by roughly 2% because of dividend taxes.

(Source: Option Generator Research)

(Source: Option Generator Research)

(Source: Option Generator Research)

Conclusion

By implementing a relatively simple option strategy, foreign investors are able to circumnavigate huge dividend withholding taxes. Most importantly, the risk-reward profile has changed favorably, resulting in a higher probability of profit and less volatility in our P&L.

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