The Lizard King just sold puts on CBI.  This one was a little different than Friday’s at the money play on LINE.  I’m more interested here in the low-ball offer than immediate income so I’ve gone out of the money for higher likelihood of getting the direction right.

I managed to get 0.76 per contract on CBI150417P00040000.  Against the current spot price of 46.20, that gives downside protection of 15.06%.  At the same time, the yield for 40 days is 1.9% or 17.34% on an annualized basis.

CBI is attractive here because the shares are depressed due to uncertainty surrounding one billion in litigation with Westinghouse regarding construction of a nuclear reactor.  The market is missing the forest for the trees as CBI has over 30 times as much in backlog and growing.  Forward profitability will be very strong, with or without a jury decision.  Personally, I think Westinghouse will settle before it gets that far as their case looks very weak.

We are running out of oil and gas transportation and storage infrastructure in the United States.  CBI will be the one to build a lot of the new stuff.  I don’t think I’ll get a price of 40 on this tasty morsel but I’m more than happy to earn 17+% while I wait for an unlikely gift.

Devour your prey, raptors!

Sharing is caring!

Chicago Bridge & Iron Company N.V. (CBI)

Never miss another opportunity to devour prey!

4 thoughts on “Chicago Bridge & Iron Company N.V. (CBI)

  • March 10, 2015 at 11:04 pm
    Permalink

    Hi FV, I am not familiar with this stock, but with 17.34% annualized return it sounds an exciting opportunity.

    A layman question regarding puts writing (not related to this article): if there is a high chance of assignment, will you usually get the put closed before expiration date, or will you wait till expiration and accept the assignment?

    Thanks.

    Reply
  • March 11, 2015 at 1:28 am
    Permalink

    MU,

    Most of the time, a put holder will wait until expiry to sell you their shares. The reason being, all the way up to the last day there is usually some small amount of time value remaining on the contract. The put holder thus has the option to sell their contract for a few pennies more per share or let time run its course. Everyone now and then, a put holder will be “irrational” and assign you early but it doesn’t happen often, at least until the last couple days when time value is “low”.

    You are more likely to be called away early when you write a covered call. What often happens is as an ex-div date approaches, the call holder will notice the distribution payment exceeds the remaining time value and will call your shares to collect the dividend. You lose out on the stock and distribution but you keep the sale price and option premium.

    Reply
  • March 17, 2015 at 9:21 pm
    Permalink

    Well said, FV. Thanks for the detailed explanation. Learned a lot.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.