Investment Reflection: Covered Call Strategy with WBA Stock
Overview
On 5 July 2024, I sold one covered call contract for Walgreens Boots Alliance (WBA) $Walgreens Boots Alliance(WBA)$ stock with a maturity date of 12 July 2024 and a strike price of $10.50. I collected an option premium of $58 per contract. Subsequently, on 8 July 2024, I decided to roll over the contract to a new maturity date of 26 July 2024, collecting an additional premium of $15 when WBA stock price fell to $10.83.
Initial Covered Call Strategy
The initial covered call strategy was implemented with the aim of generating income from the WBA stock, which I already owned. By selling a call option with a strike price of $10.50, I anticipated the stock might not surpass this level by the maturity date, allowing me to retain the premium while holding onto the stock. The $58 premium collected provided immediate income and some downside protection.
Market Context
Walgreens' involvement with VillageMD, aiming to implement value-based care, represents an innovative approach where doctors are incentivized to keep patients healthy, earning a fixed fee per patient. However, Walgreens currently lacks the necessary financial strength to fully support this model. Analyst observations highlighted issues such as deserted VillageMD locations, reflecting a need for better marketing and community engagement.
Rollover Decision
On 8 July 2024, when WBA stock price fell to $10.83, I chose to roll over the covered call to a new expiration date of 26 July 2024, collecting an additional premium of $15. This decision was influenced by several factors:
Stock Price Movement: The stock price was close to the initial strike price of $10.50, indicating that the call might be exercised. By rolling over, I could extend the option duration and collect more premium.
Additional Income: The rollover allowed me to secure an additional $15 premium, increasing the total income from the strategy to $73.
Market Uncertainty: Given the concerns surrounding Walgreens' financial capability to support VillageMD's value-based care model, rolling over provided more time for the stock to potentially recover while still generating income from premiums.
Reflection and Insights
Income Generation
The covered call strategy successfully generated immediate income through option premiums. The total premium collected from both the initial call and the rollover amounted to $73, which provided a buffer against potential declines in WBA stock price.
Risk Management
By selling covered calls, I effectively capped the upside potential of WBA stock at $10.50 but also provided downside protection through the collected premiums. This strategy is beneficial in a volatile or uncertain market, as it allows for income generation while managing risk.
Market Considerations
Walgreens' current challenges with VillageMD highlight the importance of staying informed about the underlying company's developments. The lack of effective marketing and the need for significant financial resources could impact the stock's performance. As an investor, it's crucial to monitor these factors and adjust strategies accordingly.
Conclusion
The covered call strategy with WBA stock proved to be a viable approach for generating income while managing risk. The initial premium of $58 and the additional $15 from rolling over the contract provided a total income of $73. Despite the uncertainties surrounding Walgreens' VillageMD initiative, the strategy allowed for effective risk management and income generation. Going forward, it's essential to stay updated on the company's progress and market conditions to make informed investment decisions.
$WBA CALENDAR 240726/240712 CALL 10.5/CALL 10.5$
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