Today, 8/10/12, I sold 2 Sep12 ERF $14 Puts for a net deposit of $100.47 in an IRA account. My basis for these ERF shares would be about $13.60 if they were assigned to me. This transaction represent a simple return of about 3.69% and an annualized return of about 29.96% with 45 days to expiration.
ERF is a Canadian based oil and natural gas company with properties in westernCanadaand severalU.S.states. The stock price is down from a 52 week high of $30.42. The monthly dividend was cut in July 2012 to .09 from .12, largely, I believe, due to the depressed price of natural gas. I suspect that the dividend reduction was anticipated as the share price began to fall about 3 months ahead of the cut. The actual dividend cut only affected the stock price by about $2 that it quickly regained.
I considered buying the stock and selling Jan13 $15 Covered Calls. I also considered selling the Aug12 $14 or the Sep12 $13 puts. In the end, I decided to go with the Sep12 $14 Puts. If I am assigned, I will sell Covered Calls on the shares for as far out as I can to maximize my cash flow and to collect the monthly dividends. I will consider ERF as a trade for now.
S&P does not have a price target or recommendation for ERF. MarketEdge has a price opinion of $14.06 and a Long recommendation. The 4 YHOO analysts have a 12-month price target of $18.38 and a rating of 2.5 where 1.0 is a strong sell and 5.0 is a string buy.