Covered Calls Established in Fluor Corp.

Today, a Covered Calls position was established by buying 200 shares of Fluor Corp. (ticker symbol FLR) stock at $36.25 and selling 2 December 21st, 2018 $35.00 Call options at $2.05.   The Implied Volatility of these Call options spiked to 41.9 when this position was established, a very high level historically for Fluor given that the next earnings report is after the Dec 21st options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a slightly in-the-money position was established.

As detailed below, a potential outcome for this investment is +2.3% absolute return-on-investment for the next 15 days (equivalent to +55.1% on an annualized return basis) if the stock closes above the $35.00 strike price on the Dec 21st options expiration date.


Fluor Corp.(FLR) -- New Covered Calls Position

The transactions were as follows:
12/07/2018 Bought 200 shares of Fluor stock @ $36.25 per share 
12/07/2018 Sold 2 Fluor Dec 21st, 2018 $35.00 Call options @ $2.05 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $6,846.29
= ($36.25 - $2.05)* 200 shares + $6.29 commission

Net Profit Components:
(a) Option Income: +$410.00
= ($2.05 * 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Fluor stock is above $35.00 strike price at Dec 21st expiration): -$254.95
= ($35.00 -$36.25)* 200 shares - $4.95 commission

Potential Total Net Profit (If Fluor assigned at expiration): +$155.05
= (+$410.00 option income +$0.00 dividend income -$254.95 capital appreciation)

Absolute Return: +2.3%
= +$155.05/$6,846.29
Equivalent Annualized Return: +55.1%
= (+$155.05/$6,846.29)*(365/15 days)

The downside 'breakeven price' at expiration is at $34.20 ($36.25 - $2.05), which is 5.7% below the current market price of $36.25.  This is good protection given the very high +55.1% potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the December 21st, 2018 options expiration) for this Fluor Corp. Covered Calls position is 66.3%, so the expected value annualized ROI of this investment (if held until expiration) is +36.5% (+55.1% * 66.3%), an attractive expected value profit for this in-the-money Covered Calls position.