To The Moon

On June 14, 2024, I made a critical adjustment to my Walgreens Boots Alliance (WBA) $Walgreens Boots Alliance(WBA)$  option portfolio in response to a significant drop in the stock price, which fell to $15.30. This decline positioned the stock below the strike prices of my sold put options. To address this unfavorable situation, I decided to buy back two sets of sold put options and establish a new position with a lower strike price. Here’s an analysis of the strategy employed and its implications.

Overview of Adjustments

Buying Back Sold Put Options:

Put with $20 Strike Price, Maturing on June 21, 2024:

I bought back this sold put option, incurring a cost of $314 per contract. This position was significantly deep in-the-money, and buying it back helped to mitigate the risk of a potentially larger loss as the option approached its expiration date.

Put with $18.50 Strike Price, Maturing on June 28, 2024:

Similarly, I bought back this sold put option at a cost of $171 per contract. This put option was also in-the-money but with a slightly lower intrinsic value compared to the $20 strike put.

Selling New Put Options:

Put with $16.50 Strike Price, Maturing on July 5, 2024:

After closing the previous positions, I sold two new put contracts at a strike price of $16.50, maturing on July 5, 2024. This move repositioned my portfolio with options closer to the current stock price, thereby reducing the immediate risk and potentially providing more favorable terms for profit as the market adjusts.

Strategic Analysis

The adjustment strategy involved significant actions aimed at managing the increased risk from declining stock prices. Key points of consideration include:

Risk Mitigation:

Closing Deep In-the-Money Options:

By buying back the put options at $20 and $18.50, I effectively reduced the exposure to losses from options that were deeply in-the-money. Holding these positions until expiration could have resulted in substantial losses given the significant difference between the stock price and the strike prices.

Repositioning for Improved Risk-Reward:

Establishing New Puts Closer to Current Price:

Selling new puts at a strike price of $16.50 aligns the options more closely with the current market price of $15.30. This adjustment lowers the intrinsic value risk compared to the previous higher strike prices, while also extending the expiration date to July 5, 2024. This provides additional time for potential positive movements in WBA’s stock price.

Cost Analysis:

Adjustment Costs:

The cost of $314 per contract for the $20 strike put and $171 per contract for the $18.50 strike put reflect the premiums paid to exit these positions. While these costs represent an immediate financial outlay, they are strategic expenses aimed at preventing more significant losses.

Market Position and Timing:

Strategic Timing of Adjustments:

The timing of these adjustments is crucial. By acting promptly when the stock price dropped to $15.30, I was able to reposition my portfolio before further potential declines, thus managing my exposure and creating a more manageable risk profile.

Reflection on Strategy

This adjustment highlights several important aspects of managing an options portfolio:

Proactive Risk Management:

The decision to buy back in-the-money puts and re-sell puts at a more appropriate strike price demonstrates proactive risk management. This approach is essential to avoid the exacerbation of losses and to realign the portfolio with current market conditions.

Cost Consideration Versus Potential Losses:

The costs incurred through these adjustments must be weighed against the potential for much larger losses if the original positions were held to maturity. These adjustments represent an investment in stabilizing the portfolio and positioning it for future opportunities.

Flexibility and Adaptability:

Options trading requires flexibility and the ability to adapt quickly to changing market conditions. This adjustment strategy exemplifies the importance of being able to pivot and make necessary changes to protect and potentially enhance the portfolio.

Conclusion

Adjusting the WBA option portfolio in response to the stock price drop to $15.30 was a critical move to manage risk and reposition for potential future gains. While the adjustment incurred costs, these were strategic investments in stabilizing the portfolio and aligning it with current market realities. This experience underscores the importance of active portfolio management and the readiness to adapt to dynamic market environments, ensuring that positions remain aligned with both risk tolerance and market conditions.

$WBA DIAGONAL 240705/240628 PUT 16.5/PUT 18.5$