Options Trade Alert: Walgreens Boots Alliance (WBA)

By Jim Pearce • April 17, 2018

TRADE INSTRUCTIONS

Date: April 17, 2018
Name: Walgreens Boots Alliance
Symbol (Exchange): WBA (NasdaqGS)
Type: Long Call Option
Expiration: October 19, 2018
Strike Price: 65.00
Limit: Buy below $5.25
Symbol: WBA181019C00065000

TRADE RATIONALE

It seems no news is good enough to get Walgreens moving back to the upside these days. Yesterday, CNBC reported that Amazon has decided to abandon plans to enter the hospital pharmacy business, a rumor that sent Walgreens’ share price plummeting six months ago. Two weeks ago, the company increased earnings guidance for 2018. Last week, its board announced a 7% dividend hike. And yet, its share price remains stubbornly fixated to the $65 area despite this flurry of good news.

I don’t think this discrepancy will last much longer. Now trading at less than 11 times this year earnings with a PEG ratio of less than 1.0, WBA is attractive to value and growth investors alike. If Walgreens makes it back above $75 by this fall as I expect it to, then this options trade should result in a 100% gain in less than six months.

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James Fletcher

04/17/18 ‐ 3:08pm ET April 17, 2018 at 3:08pm ET

Bought at 5.15

Kenneth B

04/17/18 ‐ 3:26pm ET April 17, 2018 at 3:26pm ET

Bought at 5.05 at 3:25 pm EST

Asjad Shamim

04/17/18 ‐ 3:19pm ET April 17, 2018 at 3:19pm ET

Hi Jim,
Just to confirm, is this a ONE LEG “CALLs” Trade?
Buy To Open: WBA
Expiration: October 19, 2018
Strike Price: $65
Limit Price: $5.25 or lower

Is above correct?

Jim Pearce

04/17/18 ‐ 3:24pm ET April 17, 2018 at 3:24pm ET

Correct.

Benny K

04/17/18 ‐ 3:22pm ET April 17, 2018 at 3:22pm ET

In at $5.10 on Schwab

Akano

04/17/18 ‐ 3:26pm ET April 17, 2018 at 3:26pm ET

In at $ 5.10 at TC.Thanks

Jeffrey J

04/17/18 ‐ 3:26pm ET April 17, 2018 at 3:26pm ET

Filled @ $5.10 on TradeStation.

Roger Dehring

04/18/18 ‐ 10:04am ET April 18, 2018 at 10:04am ET

Good morning, Jim,

Joined you in this trade. Bought JUL-OCT 72.5/65 diagonal calls for a -$4.25 debit. Then paid for part of that cost by selling the JUL 62.5/60 put spread for +$0.60. Did more contracts of the put spread so that my net cost is $3.45 per the calls. Will roll the 72.5 call forward and/or up in July.

Rick

04/19/18 ‐ 11:42am ET April 19, 2018 at 11:42am ET

I did a Call Debit spread 65/75 Oct for $3.37 on Fidelity today.

Pat C.

04/19/18 ‐ 3:38pm ET April 19, 2018 at 3:38pm ET

Bought the dip today in at $4.45.

Asjad Shamim

04/19/18 ‐ 4:45pm ET April 19, 2018 at 4:45pm ET

Is it recommended to avg down the limit price?
Currently bought @ 5.11… Recommended to buy another contract on dip?

ETKTRIDE

04/19/18 ‐ 8:37pm ET April 19, 2018 at 8:37pm ET

WBA – filled @ $4.75 DR (IB)

Len

04/20/18 ‐ 10:14am ET April 20, 2018 at 10:14am ET

WBA – Averaged down – bought at $4.40

Janis Bell

04/20/18 ‐ 3:53pm ET April 20, 2018 at 3:53pm ET

I’m kind of lost here. Just got approved for level 1 options. Am I supposed to buy 100 shares of WBA and then sell a covered call at $65? That seems contrary to Jim’s prediction that it will go up ro $75. Otherwise, I am buying a call meaning I’m agreeing to buy the stock at $65 in October if it goes to $65 or above? (Not sure I can do that in Level 1). But if it’s now below $65, why not buy it at $63 and take profits when it hits $73 or 75, assuming Jim’s predictions are on the mark?

Rick

04/21/18 ‐ 8:52am ET April 21, 2018 at 8:52am ET

This is not a covered call. That is a sale not a buy of an option.

Here we are simply buying an option. There is no future obligation to buy the stock when you buy a call and we are not buying the stock.

Jim’s recommendation is to buy the call below $5.25. With the price of the stock down, you should be able to buy the call for less than $5.25.

Janis Bell

04/21/18 ‐ 8:56am ET April 21, 2018 at 8:56am ET

Rick, Thanks!
So we make money selling the call option when the stock goes up and never have to invest in the stock itself?

Rick

04/21/18 ‐ 9:25am ET April 21, 2018 at 9:25am ET

That’s it.

John N

04/23/18 ‐ 11:03am ET April 23, 2018 at 11:03am ET

Bought in today @ $3.95 /Call for Oct 19th.

Janis Bell

04/25/18 ‐ 10:58am ET April 25, 2018 at 10:58am ET

Right now the stock is over the strike price. But the cost of the calls are less than $5.25. Mid between bid and ask is $4.65. Just trying to understand how these amounts relate to the actually stock price at the time of sale or purchase? Thanks to anyone who can explain it.

Jim Pearce

04/25/18 ‐ 1:56pm ET April 25, 2018 at 1:56pm ET

Upon expiration, the option’s intrinsic value is the difference between the strike price and its closing price that day. So, if WBA closes at $75 that day and the strike price is $65, then its intrinsic value is $10. However, between now and then a lot of factors will affect that option’s market value, including the amount time remaining until expiration (see ‘Time Value’ in the PF “Intro to Options” guide: https://www.investingdaily.com/res/downloadablePremiums/IDIntrotoOptions.pdf).

That’s why we recommend using limit orders when trading options, since the spread between the bid and ask price can become quite wide at times.

Gompps

04/26/18 ‐ 10:07am ET April 26, 2018 at 10:07am ET

Filled at 4.75 on 4/19.

Should we add a profit exit or trailing stop?

Pat C.

05/04/18 ‐ 9:54am ET May 4, 2018 at 9:54am ET

Any explanation for the poor performance of this trade? Fortunately I bailed on the GIS trade before it dropped 70%. Is this normal? I am beginning to think this strategy is nothing more than trial and error.

Jim Pearce

05/04/18 ‐ 1:57pm ET May 4, 2018 at 1:57pm ET

We’ve seen this type of behavior before in some of our trades, but I would not describe it as normal. However, we have 4+ months left in this trade so it is far too soon to bail out on it.

Jim Pearce

06/20/18 ‐ 9:58am ET June 20, 2018 at 9:58am ET

For those of you that stayed in this trade, we got some very good news yesterday that WBA is replacing GE in the Dow Jones Industrial Average: https://finance.yahoo.com/news/walgreens-boots-alliance-set-join-215900246.html. Our call option jumped 50% this morning and is trading close to our entry point with four months of time remaining.

Dramatic License

06/20/18 ‐ 12:19pm ET June 20, 2018 at 12:19pm ET

This is great news!

Pat C.

06/20/18 ‐ 3:36pm ET June 20, 2018 at 3:36pm ET

Yes, good news. I got in at $4.45 so today’s 80% gain turned my loss into a nice gain. Hard not to sell on this news but trying to remain patient.

Benny K

06/20/18 ‐ 12:12pm ET June 20, 2018 at 12:12pm ET

Nice to see WBA turning around. Hopefully GIS will post good earnings results on the 27th and bounce back.

Janis Bell

06/22/18 ‐ 3:02pm ET June 22, 2018 at 3:02pm ET

I was late in getting approved for options, and am now wondering if I should get in on this trade today. At the $65 strike price, the buy is higher than Jim’s suggestion. Is there a better way to get in close to earnings? Thanks! (PS, so happy with the profit in HBI, better than I made on anything last 18 months buying the stocks with a much smaller investment. I am hooked on options now!)

Jim Pearce

06/28/18 ‐ 9:26am ET June 28, 2018 at 9:26am ET

As I expected, Walgreens released Q3 results this morning that included an earnings beat, improved guidance, a dividend hike, and a new $10 billion share repurchase program (https://finance.yahoo.com/news/walgreens-fiscal-3q-earnings-snapshot-111433641.html). Normally, that type of news would push its share price several points higher and our call option would be looking good. Unfortunately, Amazon also announced this morning that it is acquiring PillPack to compete in the online pharmacy business (https://finance.yahoo.com/news/amazon-acquire-pillpack-123000946.html) so all of the pharmacy companies are taking a beating this morning, including WBA. I think the pre-market trading is exaggerating the impact, so we’ll see it where it settles down later in the day. Clearly, this is bad news for our option even though I believe WBA will eventually recover. Presumably, Walgreens will put some of that $10 billion to use right away to keep its share price above $60, but it may take a while for it to get back above $65.

Janis Bell

06/28/18 ‐ 10:35am ET June 28, 2018 at 10:35am ET

The 65 Oct 19 call is down to $1.55 now. Does that mean that options bidders don’t think the stock will climb back up to $65 by October? In other words, is this a good buying opportunity for options or a long position?

Jim Pearce

06/28/18 ‐ 11:25am ET June 28, 2018 at 11:25am ET

Yes, that’s what that means but I think they are wrong about that. The stock price is distorted this morning by an imbalance of buy and sell orders amplified by program trading, and I expect it to level off somewhere between $60 – 65 once the initial wave of sell orders are cleared. Keep in mind that the new $10 billion share repurchase program amounts to 15% of WBA’s current market capitalization, which is a huge number. I think this is a good buying opportunity for stock or option, but be prepared for some extreme price swings in the days to come until an equilibrium between true supply and demand is restored.

Pat C.

07/31/18 ‐ 11:50am ET July 31, 2018 at 11:50am ET

Sold my WBA Oct 65 calls yesterday for $5.58 a 25% gain. Even though there is a lot a time left on this trade given where it has been, down about 80%, I was happy to close it out with a 25% gain.

mrbb

09/20/18 ‐ 5:42pm ET September 20, 2018 at 5:42pm ET

We’re sitting on a nice gain with the WBA calls. I hate to sell too early but I’d hate even more to get caught in a selloff. I have never used stop order but is there any thought to using some type of stop order in this case? Thanks!

Jim Pearce

09/21/18 ‐ 10:39am ET September 21, 2018 at 10:39am ET

Great minds think alike. I will be issuing that alert later this morning now that we have the 50% gain I was targeting.

mrbb

09/21/18 ‐ 11:23am ET September 21, 2018 at 11:23am ET

I sold my calls for $8even before I got the alert! Thanks for the reco. I had already had subscribed to UF, OFI and VT when about 6 months ago I decided to join WS. It has more than paid for itself with trades like these! Thanks again.

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