Today, I’m looking at the opportunity with Chicago Bridge and Iron.

music selection:  “Iron Man” — Black Sabbath

I’m full up on my asset allocation for written puts right now.  I’ll have more room after CVX and maybe JNJ get called away next month.  I want to discuss CBI as an example of something that is on my watch list even though I’m not going to trade it today.

Chicago Bridge and Iron moved beyond building bridges a hundred years ago.  It is now in many different types of heavy construction.  It is building the only new nuclear power plants under construction in the US.  It is also a major player in the ongoing build out of oil and gas midstream assets.  The company is a little beaten up share price wise but I think the market is being irrational.  The company has a huge project backlog (about 30 billion.)

The S&P 500 average price to book is about 2.7 but CBI is trading at only 1.5.  This is a real bargain.  Likewise, the P/E ratio is just 7.3 which is remarkable given the revenue certainty of a 30 billion dollar backlog.  There is some litigation with Westinghouse on a nuclear plant construction deal.  It shouldn’t be big enough to wreck the company though.

I like CBI up to a price of 50 per share.  Today’s price gives us lots of upside from 41.28.  For that reason I like the looks of selling CBI151127P00041000 today for at least 2.50.  That trade would be open for 36 days and the annualized return would be an impressive 61.82%.  This is a fantastic opportunity as your “downside” is owning a company with two full years of revenue certainty at a great price.  Raptors playing the home game and get assigned should write covered calls against the position somewhere around 10% out of the money (just eyeball it, this isn’t an exact science) and target 6 weeks out on the expiry.  Keep this up until the strike reaches 50, our estimate of full value and our exit target.

Devour your prey raptors!

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

Never miss another opportunity to devour prey!

10 thoughts on “Write puts Chicago Bridge & Iron Company N.V. (CBI)

  • October 23, 2015 at 9:10 pm
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    Just rolled a CBI put forward this afternoon. The implied volatility and the IV percentile have offered nice premiums for months. At times the volatility changes quickly and I have closed out CBI puts early for very large annualized % returns. What fun! This is one underlying I keep tabs on for just the reasons you stated.

    Have enjoyed your blog for a while now. ( I am studying your UVXY strategy, but have been hesitant to coattail until I fully understand.) Thanks…

    Reply
  • October 24, 2015 at 1:58 am
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    Hi lizard king. Ditto with Rich. Are you buying Leaps on Uvxy. ? Could you elaborate further in a separate post. As always. Thanks. Got out of JNJ call earlier. But my AAPL might get called away at 119. Basis 114. Do I cry or do I laugh ? Vish

    Reply
    • October 24, 2015 at 12:08 pm
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      Vish,

      The UVXY play is LEAP puts. Over short periods of time UVXY can soar but over long periods of time it is always a loser. So you want as much time as possible to be right about the direction.

      The thing with covered calls is you should never write one if you aren’t comfortable at exiting at the strike because eventually you will. I’d laugh rather than cry though. You have a nice capital gain and fresh powder to write new puts.

      Reply
  • October 24, 2015 at 12:57 pm
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    I’m going to try this. I put in a limit order to sell 5 CBI Nov 20, 2015 puts for 2.25 each. Thanks, Lizard!

    Reply
  • October 25, 2015 at 3:52 pm
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    Mr. Lizard,
    I read thru your 2015 blog entries today. That was quite a feat, you post pretty often! First, I would like to thank you for sharing your ideas. I learned a lot, not the least of which was the link to US Dividend Champions sheet, which to me represents a lot of “safe” companies to choose from when writing naked puts etc.
    I have some things I would like to mention:
    One of your rules is to do some rudimentary technical analysis. Your’s is the best, just look at a 6 month chart and follow it from left to right, is it ascending, level or descending?
    Your UVXY is new to me, I love the idea of a totally wasting short term asset and long term puts on it. I’ll check it out. This one definitely falls from left to right.
    MORL looks like a long term loser with the same chart analysis. You made a trade on it 4/8/15 at 21.10, and it is now 14.56. This one pays out more in dividends than it can cover, perhaps.
    I’m a big believer in the 4 percent rule, you’re trying to cheat it to make do with a smaller nest egg. This may work – until it doesn’t. A 2008/2009 market may mean back to work for you!

    I’m just in the process of retiring, and have a nice stash at Vanguard. I do have several years worth of cash just lying around, however, so I opened an Interactive Brokers account to see if I can make a little money buying quality stocks, and trading options. IAB has very low commissions, makes 50 cent calls and puts worthwhile.
    Please keep posting, there are many silent readers and I’m one of them for the most part. I love new investment ideas!

    Reply
    • October 25, 2015 at 4:13 pm
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      Hey Kenneth,
      Thanks for reading!

      US Dividend Champions list: it updates monthly. Be sure to check back every now and then for updated intelligence on universe of dividend superheros.

      MORL: My very first purchase of this was at 26.32. Sounds bad, I’m down over 44%. But after distributions, I’m up 7.71%. Follow up purchases at better entry prices are doing better. I plan to hold this ETN to maturity and expect to recover far more than my cost basis in distributions over the period. It may not be the very best investment out there but it kicks off high current income, which is something you trade more for in early retirement.

      4% rule: I am in the minority on this point. It will be 40 years before I can say “told you so.” Until then, the world is free to declare I’m full of bronto-poop.

      IAB: I love it. I also have an old PMA account with Wells Fargo. It qualifies for 100 free equity trades a year so I stash all my bond and bond like instruments there. Anything that has options available goes into IAB.

      Reply
  • October 28, 2015 at 12:44 am
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    I wrote my puts, then today I wrote more puts because price dropped to 39ish. After hours, price jumps to 42, because news came out they sold their nuclear business lock, stock and barrel to Westinghouse. Thanks, Lizard!

    Reply

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