The Money Tree

Safely Generating Income in Retirement

HGT – A conservative, repeatable, CC trade

Posted by mounddweller on February 21, 2011


I wanted to share with you a trade that has worked out quite well for me.  It is unlike any other trade that I’ve previously shared with you.  As my headline states, in my mind it is a conservative, repeatable way to generate monthly cash flow.  I have executed this trade twice in the past 10 months.

The trade involves a natural gas royalty trust, Hugoton Royalty Trust (HGT).   Hugoton Royalty Trust operates as an express trust in the United States. It holds a 80% net profits interests in certain natural gas producing working interest properties of XTO Energy Inc. XTO Energy Inc. engages in the production and sale of oil and gas, and holds working interests in the Hugoton area, which covers Texas, Oklahoma, and Kansas; the Anadarko Basin of western Oklahoma; and the Green River Basin located in southwestern Wyoming. Hugoton Royalty Trust was founded in 1998 and is based in Dallas, Texas.  HGT makes monthly distributions to its share holders based on the net profits referenced above.

The basic elements of my trade are as follows:

(1) Buy the stock

(2) Sell the nearest price call 4-6 months out

(3) Collect the dividends

(4) Have HGT called away at expiration

(5) Repeat

Below are the details from my two previous rounds of making this trade.  For a conservative play, I think the returns are excellent.

For my third round in this trade I intend to do a buy/write on 500 shares, selling the AUG $22.50 calls which closed Friday at $0.55 bid.




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