To The Moon

Overview

On July 12, 2024, I sold a covered call option on Walgreens Boots Alliance (WBA) $Walgreens Boots Alliance(WBA)$  with a strike price of $10.50 and a maturity date of July 26, 2024. In return, I collected an option premium of $105 per contract. This strategy reflects my current outlook on Walgreens' operations and the broader market conditions.

Rationale Behind the Covered Call

The decision to write a covered call was influenced by Walgreens' ongoing strategic initiatives to right-size its operations. By closing unprofitable stores and reallocating resources towards higher-performing assets, Walgreens aims to streamline operations and improve long-term profitability. This restructuring effort, while creating short-term volatility, is anticipated to act as a catalyst for a swift operational turnaround in the coming quarters.

Potential Outcomes

1. Stock Price Remains Below the Strike Price:

If WBA's stock price remains below $10.50 by the option's maturity date, the call option will expire worthless. In this scenario, I will retain the collected premium of $105, providing a buffer against any downside movement in the stock price. This premium acts as an additional return on my investment, enhancing my overall yield.

2. Stock Price Exceeds the Strike Price:

Should WBA's stock price exceed $10.50 by July 26, 2024, the call option will be exercised. In this case, I will be obligated to sell my shares at the strike price, potentially capping my upside gains. However, the initial premium collected will still add to the overall profit from the transaction, ensuring a positive return even if the stock rallies.

Strategic Considerations

Risk Management:

Writing a covered call is a conservative strategy aimed at generating additional income while holding the underlying stock. It helps mitigate some downside risk by the premium collected but also caps potential upside.

Market Outlook:

The covered call strategy aligns with a neutral to moderately bullish outlook on WBA. While I anticipate potential volatility due to Walgreens' restructuring efforts, I believe the long-term strategic moves will pay off, leading to stabilized and potentially improved stock performance.

Income Generation:

The $105 premium collected represents immediate income and enhances my overall return on investment. This strategy is particularly useful in a sideways market where significant price appreciation is not expected in the short term.

Conclusion

The decision to sell a covered call on WBA is rooted in a balanced approach to income generation and risk management. By capitalizing on Walgreens' strategic operational adjustments, this strategy aims to benefit from both the premium income and potential moderate stock price appreciation. While the restructuring may introduce short-term volatility, the long-term prospects of a more efficient and profitable operation make this covered call strategy a sound investment decision.

Looking ahead, monitoring Walgreens' progress in its turnaround efforts will be crucial in assessing the ongoing viability of similar option strategies. If the company's initiatives prove successful, further opportunities for covered calls or other options strategies may arise, continuing to enhance returns and manage risks effectively. 

$WBA 20240726 10.5 CALL$