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Tuesday, October 20, 2009

Establish EMCOR Group Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of EMCOR Group Inc.(EME) covered calls. You might recall that covered calls positions in EME were established in the CCAP each month for the past three expirations (Aug09,Sep09, and Oct09) and each month the stock ended in-the-money and the stock was called away; with annualized return results of 50.8%, 58.1%, and 64.4% respectively. The new position established today was as follows:

Established EMCOR Group Inc.(EME) Covered Calls for Nov09:
10/20/09 Bought 400 EME @ $24.35
10/20/09 Sold 4 EME Nov09 $25.00 Calls @ $.85

EMCOR Group, Inc. is an Engineering and Construction (E&C) company that provides electrical and mechanical construction and facilities services worldwide. It engages in the design, integration, installation, start-up, operation, and maintenance of various electrical and mechanical systems; heating, ventilation, air conditioning, and refrigeration; fire protection systems; plumbing systems; and various industrial maintenance services. Maintaining a corporate reputation for quality is essential for success in the highly-competitive bidding processes that are commonplace in the E&C industry. EMCOR is preeminent in this regard. In Fortune's Most Admired Companies rankings, EMCOR is #1 in the E&C category; and Forbes rates EMCOR as the "Best Managed" company in the Construction Industry.

The 'Buy Alerts' spreadsheet below shows that at its current price, EMCOR continues to have very compelling value characteristics across the board. It ranks very high on the Covered Calls Advisor 'Buy Alerts' worksheet shown below with a 'Total Points' rating of 24.70, well above the desired threshold of 20.0 points. Its earnings yield, balance sheet, and free cash flow levels are all at very attractive levels from a valuation perspective. EMCOR is also one of the beneficiaries now from the worldwide government stimulus money. These factors along with its excellent senior management team have been (over the past three options expiration months) and are continuing now to provide this advisor with an excellent covered calls investing opportunity.

Note: For expanded view, left click on the spreadsheet above.

Some possible overall performance results(including commissions) for the EME transactions would be as follows:
Stock Purchase Cost: $9,748.95
= ($24.35*400+$8.95 commission)

Net Profit:
(a) Options Income: +$328.05
= (400*$.85 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $24.35): -$8.95
= ($24.35-$24.35)*400 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $25.00): +$251.05
= ($25.00-$24.35)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.35): +$319.10
= (+$328.05 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $25.00): +$579.10
= (+$328.05 +$0.00 +$251.05)

Absolute Return if Stock Price Unchanged at $24.35: +3.3%
= +$319.10/$9,748.95
Annualized Return If Unchanged (ARIU): +37.3%
= (+$319.10/$9,748.95)*(365/32 days)

Absolute Return if Stock Exercised at $25.00: +5.9%
= +$579.10/$9,748.95
Annualized Return If Exercised (ARIE): +67.8%
= (+$624.85/$8,468.95)*(365/32 days)

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