Build Profits With a Chicago Bridge Option

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Overview Chicago Bridge and Iron (NYSE: CBI ) provides engineering, procurement, and construction solutions for customers in the energy and natural resources industries, primarily oil and gas companies. Customers include Chevron (NYSE: CVX ), Exxon Mobil (NYSE: XOM ) and ConocoPhillips (NYSE: COP ). CBI reported Tuesday earnings of $0.50 versus market estimates of $0.54, while revenues rose nearly 10%. It forecast revenue growth in its refinery market, and recently received new project awards with a value of $4.5 billion to $5 billion. CBI reaffirmed its EPS and that its long-term debt is trending lower. These factors contribute to our upbeat outlook for the construction and engineering sub-industry group. Option Trade With the stock trading at 40.65, we would consider selling the CBI June 39 Put for a premium of 1.30. The investors breakeven in the stock would be $37.70 ($39.00 – $1.30 = $37.70). If the stock were to trade below this level by the June expiration, the puts would be in the money and the investor would establish a long position at the 39 strike price. By selling the naked put, the investor has unlimited risk and must be willing to establish a long position if the puts expire in the money (below $37.70). Based on the recent stock reports, we would be comfortable if that were to occur. If the stock were to trade in its current range or higher come expiration, the investor would get to keep the premium from the sale of the puts. Some brokers restrict certain accounts from the sale of naked options. Check with your broker for its policy. Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.