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Wednesday, November 11, 2009

Roll Down -- Fluor Corporation

Today the existing Fluor Corporation(FLR) covered calls were rolled down from the Nov09 $55.00 to the Nov09 $45.00 strike price. With the price of FLR at $45.04 today, this position met the Covered Calls Advisor's three criteria for transacting a roll down. The three criteria are:
1. Roll down when the current equity price is more than 10% below the current strike price. At $45.04, the price of FLR was 18.1% below the existing strike price of $55.00.
2. And make the roll transactions when the current equity price is very close to the new strike price (within + or - $.25 of the new strike price) -- i.e. very close to at-the-money. At $45.04, the current stock price was very close (only +$.04) from the potential new $45.00 strike price.
3. And roll (within the same expiration month) if more than 1 week (7 calendar days) until expiration. Roll out to the next expiration month if 1 week or less from the current expiration. There are currently 10 calendar days until Nov09 expiration, so a roll down within the same month was executed.

A roll-down credit spread transaction was executed as follows:
11/11/09 Buy-to-Close (BTC) 3 FLR Nov09 $55.00s @ $.05
11/11/09 Sell-to-Open (STO) 3 FLR Nov09 $45.00s @ $1.15
Note: Net Credit-Spread upon Roll-Down was $1.10 ($1.15 - $.05)

09/22/09 Bought 300 FLR @ $54.93
09/22/09 Sold 3 FLR Oct09 $55.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of FLR was $50.24 on expiration Friday.
10/19/09 Sell-to-Open (STO) 3 FLR Nov09 $55.00s @ $.95
The price of FLR was $51.57 today when this transaction was executed.
11/11/09 Buy-to-Close (BTC) 3 FLR Nov09 $55.00s @ $.05
11/11/09 Sell-to-Open (STO) 3 FLR Nov09 $45.00s @ $1.15
Note: Net Credit-Spread upon Roll-Down was $1.10 ($1.15 - $.05)

Some potential overall performance results(including commissions) for this FLR covered calls position would be as follows:
Stock Purchase Cost: $16,487.95
= ($54.93*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,166.40
= (300*($1.95+$.95-$.05+$1.15) - 3*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $45.00): -$2,987.95
= ($45.00-$54.93)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $45.00): -$1,821.55
= (+$1,166.40 +$0.00 -$2,987.95)

Absolute Return if Exercised at $45.00: -11.0%
= -$1,821.55/$16,487.95
Annualized Return If Exercised (ARIE) -67.2%
= (-$1,821.55/$16,487.95)*(365/60 days)

2 comments:

  1. Am I to infer that you no longer believe in the underlying fundamentals of fluor?

    ReplyDelete
  2. No. If I believed there was a 'fundamental breakdown' in the company's prospects, then I would sell out of the position completely rather than continuing to hold it.

    ReplyDelete