Chevron Corp. (CVX) may hike its quarterly dividend next quarter, when it reports its Q4 results at the end of January 2027. That may imply that CVX stock becomes undervalued if it drops further. Also, analysts have higher CVX price targets (PTs). As a result, it makes sense to short out-of-the-money (OTM) puts or do put credit spreads.
CVX closed at $207.10 on Oct. 1, up 1.42%. It's below a recent Sept. 15 peak of $217.77, but above a low of $202.41 on Sept. 4.
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CVX - last 3 months - Barchart - Oct. 1, 2026 I discussed whether Chevron could afford a dividend hike in my last Barchart article on Chevron on Aug. 3, “Chevron Stock Moves Higher on Strong Results -Shorting CVX Puts and Calls Works Here.”
Chevron has raised its dividend every year for the past 38 years. I suggested that when it reports its Q4 results on January 30, 2027, it may set the annual dividend per share (DPS) 13.8% higher at $8.10 per share (up from $7.12 currently).
That would give CVX stock an annualized yield of 3.91% (i.e., $8.10/$207.10).
Historically, it has had a dividend yield ranging from 3.93% to 4.03% over the last 5 years, according to Seeking Alpha. That averages 3.98%, slightly higher than today's yield.
As a result, investors may find it attractive to buy CVX when it is below $203.52. Here's why:
$8.10 DPS / 0.0398 = $203.52
CVX Price Targets Are Higher
Since my last Barchart article, analysts have raised their price targets (PTs). Yahoo! Finance's survey has an average PT of $224.21, up from $215, as seen in my Aug. 3 Barchart article.
In addition, Barchart's mean survey PT is now $221.93, up from $213.70.
This could be because they are expecting solid earnings per share (EPS) this year of $16.59 per share, as well as strong cash flow, as I previously discussed. As long as oil and gas prices stay elevated, this could carry over to next year as well.
That puts CVX stock on a forward price/earnings (P/E) ratio of just 12.3x compared to its average forward P/E of 13.8x.
The bottom line is that investors should look for opportunities to buy into CVX when it dips.
One way to do this is to sell short out-of-the-money (OTM) put options in near-term expiry periods.
Shorting CVX Puts
For example, the Nov. 13, 2026, expiry period, 44 days from now, shows that the $195.00 put strike price has a midpoint premium of $3.83. That implies that short sellers of this put contract can make a 1.5-month expected yield of almost 2.0%:
$3.83 / $195.00 = 0.01964 = 1.964%
CVX puts expiring Nov. 13 - Barchart - Oct. 1, 2026 In other words, you don't have to wait until CVX drops. The investor posts $19,500 in collateral with their brokerage firm in order to potentially buy 100 shares at $195.00, if CVX drops to that point.
But the account immediately collects $318.00. So, as long as CVX stays over $195.00 on or before Nov. 13, the account won't be assigned. At that point the collateral will be released and the short-put play can be done again.
So, over a year, the expected return (ER) is:
364/44 = 8.3, or 8 plays
8 x 1.964% = 15.71% ER
Note: there is no guarantee that this yield can be made every 44 days. But the investor has a way of potentially making this ER.
Even if the account is assigned to buy 100 shares at $195, the breakeven all-in cost is $195 - $3.18, or $191.82. That's 7.38% below today's price and provides potentially attractive upside given the higher PTs.
CVX Put Credit Spread
Another play is to do a put credit spread. That works for investors who don't have $19.5K in collateral to do this short-put play. However, the risks are higher.
The investor shorts the $195 put and buys the $190 put (long). The net credit collected is:
$318 - $201 = $117
However, the brokerage firm will only require $500 in collateral to do this play (i.e., $19.5K short - $19.0K long). So, the expected return is very high:
$117/ ($500-$117) at risk = $117/$383 = 30.55% ER
The investor collects $117, but has $383 at risk of loss (i.e., the $500 collateral posted less the $117 already collected).
This is a way for smaller investors to take advantage of the potential upside in CVX stock.
However, note that the risk of losing the $500 collateral is always present. The delta ratios are low, implying a good chance of profit. But investors should be willing to lose this amount (less the net premium collected) in order to do this play.
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.
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