2 Covered Call Ideas on Walgreens Stock

With markets looking increasingly volatile, investors might be more interested in generating income rather than capital gains. 

Walgreens (WBA) is one of the highest yielding stocks in the S&P 500, with the current dividend yield sitting at 4.60%.

Using options, we can generate an additional income from high yielding stocks via a covered call strategy.

WBA Covered Call Example

Let’s look at two different covered call examples on WBA stock. The first will use a monthly expiration and the second will use a seven-month expiration.

Let’s evaluate the first WBA covered call example. Buying 100 shares of WBA would cost around $4,020. The July 15, 42.50 strike call option was trading yesterday around $0.85, generating $85 in premium per contract for covered call sellers. 

Selling the call option generates an income of 2.16% in 30 days, equalling around 26.26% annualized. That assumes the stock stays exactly where it is. What if the stock rises above the strike price of 42.50?

If WBA closes above 42.50 on the expiration date, the shares will be called away at 42.50, leaving the trader with a total profit of $312 (gain on the shares plus the $85 option premium received). That equates to a 7.92% return, which is 96.39% on an annualized basis. 

Instead of the April 50 call, let’s look at selling the January 42.50 call instead. Selling the 42.50 call option for $2.90 generates an income of 7.77% in 219 days, equalling around 12.95% annualized.  If WBA closes above 42.50 on the expiration date, the shares will be called away at 42.50, leaving the trader with a total profit of $517 (gain on the shares plus the $290 option premium received).

That equates to a 13.85% return, which is 23.08% on an annualized basis.

These figures don’t include any potential dividends received during the course of the trades.

Of course, the risk with the trade is that the WBA might drop, which could wipe out any gains made from selling the call.

Barchart Technical Opinion

The Barchart Technical Opinion rating is a 100% Sell with a strongest short term outlook on maintaining the current direction. Long term indicators fully support a continuation of the trend. The market is in highly oversold territory. Beware of a trend reversal.

Implied volatility is at 3929% compared to a 12-month low of 21.84% and a 12-month high of 41.96%. 

Company Description

Walgreens Boots Alliance, Inc. operates as a retail drugstore chain. The Company sells prescription and non-prescription drugs, as well as general merchandise products, including household items, convenience and fresh foods, personal care, beauty care, photofinishing and candy. Its pharmacy, health and wellness services include retail, specialty, infusion and respiratory services, mail service and convenient care clinics. The Company offers its products and services through drugstores, as well as through mail, by telephone and online. Walgreens Boots Alliance, Inc., is based in Deerfield, Illinois.

Of the 11 analysts following the stock, 9 rate it as a Hold, 1 a Moderate Sell and 1 a Strong Sell.

Covered calls can be a great way to generate some extra income from your core portfolio holdings.

Please remember that options are risky, and investors can lose 100% of their investment.  This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

*Disclaimer: On the date of publication, Steven Baster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. Data as of after-hours, June 14, 2022.