Investment Reflection on Adjusting WBA Option Portfolio

Overview

Walgreens Boots Alliance $Walgreens Boots Alliance(WBA)$  , a prominent pharmacy-led healthcare company, recently reported its third-quarter earnings with mixed results. While the company affirmed an increase in earnings per share (EPS) to 40 cents, compared to 14 cents in the previous year, this was overshadowed by a significant non-cash impairment related to pharmacy license intangible assets at Boots UK. The adjusted EPS fell by 36.6% in constant currency, and challenging retail conditions, along with tough trends impacting its pharmacies, led to a drop in sales growth expectations.

In response to these adverse developments, I made a strategic adjustment to my WBA option portfolio on 3 July 2024. This reflection details the rationale, actions taken, and the outcome of this strategy.

Strategic Adjustment

Given the adverse movements of WBA's stock price to USD 11.10, which is below my initial strike price of USD 15, I decided to adjust my position to mitigate potential losses and capitalize on available opportunities. The adjustment involved:

Buying Back the Sold Put Position: I closed my existing sold put position with a strike price of USD 15, maturing on 19 July 2024.

Selling a New Put Position: I sold a new put with a strike price of USD 16, maturing on 12 July 2024.

This adjustment profited me an option premium of USD 98 per contract, resulting in a total profit of USD 196 for my two contracts.

Market Context and Company Performance

Walgreens Boots Alliance's performance in the third quarter highlighted several challenges:

Earnings and Sales: While EPS rose to 40 cents from 14 cents in the prior year, adjusted EPS dropped significantly. Sales for the quarter increased by 2.6% YoY to $36.4 billion, reflecting a 2.5% increase on a constant currency basis.

Adjusted EPS Forecast: The company revised its fiscal 2024 adjusted EPS forecast downward to $2.80 to $2.95, citing tough pharmacy trends and challenging consumer environments in the U.S.

Strategic Initiatives: Walgreens Boots Alliance is working on a sizeable multiyear footprint optimization program to shut down underperforming U.S. stores. Additionally, they plan to enhance customer and patient experiences across all channels.

Outlook and Insights

The strategic adjustment of my option portfolio was driven by the need to manage risk amidst a volatile market environment and company-specific challenges. By buying back the sold put position at a strike price of USD 15 and selling a new put at USD 16, I not only mitigated potential losses but also secured a premium profit of USD 196.

This adjustment underscores the importance of remaining flexible and responsive to market changes. It also highlights the value of closely monitoring company performance and broader market conditions to inform investment decisions. Despite the challenges faced by Walgreens Boots Alliance, the strategic shift in my option positions allowed for a profitable outcome.

Conclusion

Adjusting my WBA option portfolio in response to the adverse movements of the stock price was a prudent decision. The move to buy back the sold put position and sell a new one enabled me to profit from the premium, while also managing risk effectively. This experience reinforces the need for vigilance and adaptability in investment strategies, particularly in a fluctuating market and amid company-specific challenges.

Going forward, I will continue to closely monitor Walgreens Boots Alliance's performance and broader market conditions, ready to make further adjustments as necessary to optimize my investment outcomes.

$WBA DIAGONAL 240719/240712 PUT 15.0/PUT 16.0$