From this morning's Report:
I was reminded this morning, WBA is still under $40, which is $34Bn and the company makes about $4Bn a year so not even 9 times earnings to buy Walgreens-Boots.
We just reviewed their Earnings Presentation this morning in our Live Chat Room and I can’t believe the negativity on this place where 67M people were vaccinated since last year. ALL those people came to the store. If they each spent $10 while they were there, that’s $670M of retail business and earnings were indeed up 13.9% from last year.
I guess people think Covid is “over” but it’s not by a long shot and we will be needing boosters for years to come. Other than our Money Talk Portfolio, we had cashed in our WBA positions so now is a good time to add them back.
For our Long-Term Portfolio, let’s:
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- Sell 10 WBA 2024 $40 puts for $6 ($6,000)
- Buy 25 WBA 2024 $35 calls for $6.80 ($17,000)
- Sell 25 WBA 2024 $45 calls for $2.35 ($5,875)
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That’s net $5,125 on the $25,000 spread that’s half in the money to start. To the downside, we risk being assigned 1,000 shares at $40 and, if we lose the $5,125 entirely, our net cost of 1,000 shares would be $45.125 per share. On the other hand, we are starting out half in the money on a $25,000 spread with $19,875 (387%) upside potential in 18 months.
In reality, we’re going to be thrilled to buy more if WBA goes lower and the puts can be rolled to 2025 $35 puts when they come out. Having 25 spreads also paves the way for us to sell short calls while we wait. The October $40s, for example, are $1.60 for 85 days (and we have 540 days to sell) so just selling 10 of those for $1,600 gives us 32% of our cash outlay back – but we’re too optimistic to do that just yet.
