Search This Blog

Friday, April 24, 2009

Establish Fluor Corporation Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Fluor Corporation(FLR) covered calls as follows:

Established Fluor Corporation(FLR) Covered Calls for May09:
04/24/09 Bought 500 FLR @ $39.975
04/24/09 Sold 5 FLR May09 $40.00 Calls @ $2.40

Fluor provides engineering, procurement, construction management, and project management services worldwide. Its business is well-balanced with approximately half coming from the oil & gas industry and half from other industrial and government infrastructure projects. As a highly-respected contractor, Flour is poised to benefit from both government infrastructure stimulus efforts and eventually from a recovery from the current recession. In addition, with the current price of oil near the $50 level, this advisor believes that oil is more likely to trade higher over the next several years. If the oil price does trend higher, Flour's stock price would also likely move significantly higher as well. Fluor's business is also geographically well-diversified with about half coming from within the U.S. and the other half from numerous countries worldwide. Another very important consideration for the Covered Calls Advisor is a company's valuation characteristics, and Fluor is very attractive on this basis as well.

Some potential results from this Fluor covered calls transaction are as follows:

Absolute Return if Unchanged at $39.975: +6.0%
Annualized Return If Unchanged (ARIU): +99.6%
= ($2.40/$39.975)*(365/22 days)

Absolute Return if Exercised at $40.00: +6.1%
=[$2.40+($40.00-$39.975)]/$39.975
Annualized Return If Exercised (ARIE): +100.6%

Downside Breakeven Price Point: $37.575
Downside Breakeven Protection: 6.0%

No comments:

Post a Comment