Tuesday, September 22, 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 Oct09:
09/22/09 Bought 300 FLR @ $54.93
09/22/09 Sold 3 FLR Oct09 $55.00 Calls @ $1.95

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 from a recovery from the current recession. In addition, with oil near the $70 level, Flour's stock price is attractively priced and could move significantly higher. 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 $54.93: +3.5%
Annualized Return If Unchanged (ARIU): +51.8%
= ($1.95/$54.93)*(365/25 days)

Absolute Return if Exercised at $55.00: +3.7%
=[$1.95+($55.00-$54.93)]/$54.93
Annualized Return If Exercised (ARIE): +53.7%

Downside Breakeven Price Point: $52.98
Downside Breakeven Protection: 3.5%

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