Chevron Corp (CVX) stock is up 14.7% YTD and still looks cheap with a 4.1% dividend yield and a forward price-to-earnings multiple below 15x. Value buyers love this, and many are shorting out-of-the-money (OTM) puts to gain extra income.

CVX closed at $166.09, up from a recent low of $150.85 on March 5. However, it is still well below its 5-year high of $188.53 on November 7, 2022. Moreover, analysts still have significantly higher price targets, as will be seen later in this article.

Chevron recently raised its annual dividend per share (DPS), which was easily affordable. I discussed this in a March 4 Barchart article, “Chevron Stock's 4.5% Yield Attracts Value Investors, Along with Short-Put Plays.”

In that article, I discussed shorting out-of-the-money (OTM) put options, and this article will update that play.

Value Buy

With Chevron's $6.84 annual dividend per share (DPS), i.e., $1.71 paid quarterly, CVX stock now has a 4.11% annual dividend yield:

   $6.84 / $166.09 = 0.04118 = 4.11%

That is close to its average yield over the last 5 years, according to Morningstar (4.20%), and Seeking Alpha (4.0%). The average of these two surveys is 4.10%, close to the 4.11% yield today.

But keep in mind that an average means that 50% of the time, CVX stock will trade over that yield, and 50% of the time it's below that point. 

Moreover, there is an inherent bias towards a lower yield, given that Chevron consistently raises its dividend per share. It has done this every year for the past 37 years.

In addition, it looks cheap based on other metrics. Based on analysts' estimates for the next two years (Seeking Alpha), CVX stock trades for less than 15x earnings:

   2025 P/E multiple: 16.13x;  2026 P/E: 13.57x:  Average Forward P/E multiple: 14.85x

However, Morningstar's valuation page reports that its average 5-year forward P/E multiple has been lower at 13.69x.  Nevertheless, analysts may be expecting that multiple will rise. This is because their average price targets are much higher.

Price Targets

For example, Yahoo! Finance's survey of 25 analysts' price targets is $176.89. This is similar to Barchart's mean survey of $176.91 per share. These targets imply that CVX stock still has +6.5% upside.

Moreover, AnaChart.com, which covers analysts who have written about CVX recently and measures their performance, reports that the average of 23 analysts' price targets is almost $200 (i.e., $199.96). For example, look at the table below from AnaChart's survey of analysts covering CVX.

These are the top 5 performing analysts (i.e., with the highest ranking using AnaChart's Performance Score rating - on the far right). Almost all of these analysts (4 out of 5) have recently raised their price targets. 

For example, Alastair Syme of CITI raised his buy target on CVX four months ago from $170 to $185. He has been right almost 85% of the time, as seen in the Price Targets Met Ratio column.

Moreover, the average of these top 5 analysts is $175.80 per share, which is +10.7% higher than today's stock price.

Nevertheless, there is no way to know when CVX stock will rise to this price target. One way to conservatively play this is to sell short an out-of-the-money (OTM) put option in a nearby expiry period. That way, the investor can set a lower buy-in price and get paid while waiting to see if the stock will fall to this point.

Shorting OTM Puts

I discussed this play in my last article on March 4. I discussed selling short the March 28 expiration $146.00 put option strike price, which was 24 days to expiry (DTE). At the time, CVX was at $152.44, so this strike price was 4.2% out-of-the-money (i.e., the strike price was 4.2% below the spot trading price).

At the time, the puts had a midpoint premium of $1.93 per put contract. So the investor made an immediate yield of 1.32% (i.e., $1.93/$146.00).

Since CVX closed at $166.09, these options expired worthless. As a result, the investor had no obligation to use the cash secured for this trade (i.e., $14,600 for 100 shares) to buy CVX shares. This play can now be repeated.

For example, look at the May 2, 2025, expiration period, which is just over one month away (34 DTE). It shows that the $157.50 strike price put contract has a midpoint premium of $1.36. That provides an immediate yield of 0.8774% (i.e., $1.36/$155.00).

Moreover, the $160 strike price put has a $1.89 premium, or a cash-secured put play yield of 1.181% (i.e., $189/$160.00).

Both of these put contract strike prices are below the trading price (i.e., out-of-the-money or OTM). For example, the $157.50 strike is 5.17% below the $166.09 closing price, and the $160.00 strike is 3.67% OTM.

An investor doing this play must first secure $15,750 in cash or buying power with their brokerage firm (i.e., cash-secured put) to be collateral to purchase 100 shares per put contract. The investor can then enter a trade to “Sell to Open” 1 put contract at $157.50.

As a result, if the trade is done at the midpoint, the account will immediately receive $136.00. That provides the immediate yield of 0.86%. 

Similarly, to do the $160 short play, the investor secures $16,000 with their brokerage firm, and after a “Sell to Open” trade at the midpoint, the account will receive $189.00. That is 1.18% of the $16K invested.

So, doing a mixture of these two trades could likely give the investor an approximate 1.0% yield over the next month. As long as CVX stays above the highest strike price ($160.00), the investor's collateral would not be used to buy 100 shares.

This is an easy way to set a lower buy-in price for an investor who believes CVX could drop from its present price. The reason is that the breakeven points are lower, after the income is received. 

For example, the $157.50 strike price has a $156.14 breakeven point (i.e., $157.50-$1.36), or 6.0% below the price as of Friday, March 28. As long as CVX stays over that point over the next month, the investor will not have a potential unrealized capital loss.

Nevertheless, investors should study the investment risks of shorting OTM puts. For example, the Barchart Options Education section has an Options Learning Center tab, and an Options Trading Risk tab.

The bottom line is that CVX stock still looks cheap here, and shorting OTM puts is one way to play this by setting lower buy-in price targets for income.

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. For more information please view the Barchart Disclosure Policy here.