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Tuesday, May 12, 2009

Roll-Up-and-Out -- Fluor Corporation

The Covered Calls Advisor Portfolio (CCAP) covered calls position in Fluor Corporation(FLR) was rolled-up-and-out today (05/12/09) from the May09 $40.00s to the Jun09 $45.00s. The transactions were executed as follows:
05/12/09 Buy-to-Close (BTC) 5 FLR May09 $40.00s @ $6.10
05/12/09 Sell-to-Open (STO) 5 FLR Jun09 $45.00s @ $3.90
Note: The price of FLR was $46.02 today when these transactions were completed.

The Transactions History to date for the FLR covered calls is as follows:
04/24/09 Initial Stock Purchase Transaction -- Bought 500 FLR @ $39.975
04/24/09 Inital Calls Sold Transaction -- Sold 5 FLR May09 $40.00 Calls @ $2.40
Roll-Up-and-Out transactions:
05/12/09 Buy-to-Close (BTC) 5 FLR May09 $40.00s @ $6.10
05/12/09 Sell-to-Open (STO) 5 FLR Jun09 $45.00s @ $3.90

Fluor issued a quarterly earnings report this morning that was significantly above the consensus forecast. The company also identified a sequential improvement in quarterly contract bookings. Investors will likely focus on the conservative guidance for the full year and the prospect for further contract awards given the recent firmness of crude oil pricing. So, with the stock moving higher this morning, the implied volatility increasing to around 54, and only $.08 time-value remaining in the current May09 $40 option, the Covered Calls Advisor decided to roll-up-and-out to the Jun09 $45 covered calls position.

The overall performance results(including commissions) for the FLR transactions through the Jun09 expiration would be as follows:

Stock Purchase Cost: $19,996.45
($39.975*500+$8.95 commission)

Net Profit:
(a) Options Income: +$61.90 (500*($2.40-$6.10+$3.90) - 3*$12.70 commissions)
(b) Dividend Income: +$62.50 Ex-Div on 6/3/09 ($.125*500 shares)
(c) Capital Appreciation (If exercised at $45.00): +$2,503.55
= ($45.00-$39.975)*500 - $8.95 commissions

Total Net Profit(If stock price exercised at $45.00): +$2,627.95
= (+$61.90 +$62.50 +$2,503.55)

Absolute Return If Exercised = +13.1%
+$2,627.95/$19,996.45
Annualized Return If Exercised (ARIE) +84.2%
(+$2,627.95/$19,996.45)*(365/57 days)

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