Even if an Iran deal calms energy markets, one oil stock can still stand out

While the broader market grapples with geopolitical instability, Shell plc (SHEL), along with other large integrated oil companies, have benefited from higher oil prices and should warrant investor attention.

Despite the dual blockades by both Iran and the US currently roiling the Strait of Hormuz — the most significant energy supply disruption in modern history — Shell’s integrated model and massive trading arm are positioned to thrive. Even if ongoing negotiations lead to a de-escalation, the logistical backlog will take quarters to unwind, keeping energy prices structurally supported, to say nothing of the need to replenish strategic petroleum reserves; an important insurance policy as the world has now been painfully reminded.

For investors looking to harvest yield from this environment, I’m targeting a moderately bullish income play.

Action: Sell the June 85 PutsCredit Received: Approximately $1.75(~2% of the strike price)Probability of Profit: >70%Standstill Yield: Just over 17% annualizedDegree of difficulty: Intermediate

The effective closure of the Strait of Hormuz since late February has removed millions of barrels from the daily global supply. While diplomatic efforts are underway, shipping insurance remains at prohibitive levels. This “higher-for-longer” pricing environment for Brent crude directly feeds Shell’s Upstream and Integrated Gas margins.

Even a “peace pivot” won’t immediately refill global inventories, providing a solid floor for the stock.

The company just completed its latest $3.5 billion share buyback program as of May 1st. Given the substantial free cash flow (FCF) generated by high realization prices, management is widely expected to announce a fresh buyback tranche during the upcoming earnings call. Coupled with a dividend yield currently hovering around 3.2%, the total capital return story is one of the strongest in the space.

Shell reports earnings this Thursday, May 7th. While earnings events often trigger volatility in tech, SHEL has historically been a “sleep well at night” stock. On average, the share price moves only 2.7% on the day following the release. By selling the 85-strike put, we are positioning ourselves well below current trading levels, allowing for a significant “margin of safety” even if the market reacts poorly to the headline numbers.

With a forward P/E of roughly 8.7x, Shell is not priced for the reality of its current cash generation. By selling the June 85 puts, we are essentially betting that massive buybacks and a global energy deficit will prevent a significant slide, allowing us to pocket the $1.75 premium for a high-probability, double-digit annualized return.