WBA: Covered call

Investment Analysis Clubs Liquid Lounge
1

I created a tiny covered call (just one contract) on WBA, Wallgreens Boots Alliance, just to track. This is slightly in the money call, bought 100 shares @ $24.04 and sold one covered call Jan 25, $20 strike for $5.89 for a net of $18.15. WBA recently cut their dividend and the new dividend is $0.25 per quarter. They expect to earn at least $3 EPS (lot of moving parts, so will wait for a quarter to get an idea of cash flow) but expect they can support the dividend at the current level. Remember they just cut the dividend, not a great sign. This is just one contract a tiny position to track, if the stock stays above $20 by Jan 2025, including dividends you will get 15.7% annualized dividend.

There are lot of unknowns and moving pieces. WBA is in the midst of transformation. This is really risky and not ideal candidate for covered call. You should do covered call on steady names and this is anything but.

2

Wallgreens WBA will be removed from DOW jones index. In the past stocks that are removed from Index has outperformed in the short term basis. Of course there will be some initial selling as the Index funds need to sell and get out of the position.

3

The stock has steadily declined and now $20.7. Earnings is next week, march 28th. I have today added another contract, for net $17.3 If the stock stays above $20, you get 24% yield.

Generally it is better to wait for the earnings, unless you have high conviction. I don’t have high conviction, yet… :slight_smile:

4

WOW. When you realize something is risky and still invest, that is stupid. Investors are hit by unknown risks, but suffering massively from known risks… requires special kind of hubris.

This is now 50% down from my price.