Stock Investment in Walgreens Stock With In The Money Covered Calls

My previous stock investment article on Walgreens Stock looked at put selling to take advantage of the continued weakness in Walgreens Stock. As a followup to that stock investment tip, this article looks at Walgreens Stock as a stock investment through buying the stock and selling in the money covered calls.

You can acquaint yourself with the put selling strategy article through this Stock Investment link which also explains my outlook on Walgreens Stock in general. For interested investors this stock investment link will take you to Walgreens investor relations.

Walgreens Stock Outlook In A Nutshell

In a nutshell, Walgreens has declining revenue which the company must improve upon or the stock will continue to deteriorate. However the dividend remains safe and the stock as it does decline should be slow. It is the slow decline that will make this in the money covered calls trade successful and profitable. The put selling trade on Walgreens Stock which the previous stock investment article discussed has the very same characteristics. The difference with using in the money covered calls is to capture the dividend and earn more if the stock continues to decline.

Walgreens Stock Investment Chart

In the chart below you can see that Walgreens stock was excellent since September for selling in the money covered calls. If investors had followed the course of selling in the money covered calls at the $30.00 strike since September, that strategy had paid off well.

The recent decline down to $30.00 will mean I have to change from in the money covered calls from $30.00. There are three in the money covered calls strategies that can be applied and probably more if I wanted, but any of these three strategies would suit me well.

Stock Investment In The Money Covered Calls Strategies

These three different in the money covered calls strategy all depend on the level of risk of exercise or of not being exercised, which an investor is willing to take with his stock investment in Walgreens Stock. All three are straight forward and simple strategies that I have used and am using on Walgreens Stock.

All figures do not include commissions charges.

Walgreens Stock In The Money Covered Calls Strategy 1 – For The Risk Taker

The first strategy is simply to continue to sell the $30 strike and stay just slightly in the money until the stock falls below $30.00. Once that occurs it will be time to buy to close the $30.00 covered calls and roll down to $29.00. Walgreens stock is in a narrow trading range and this recent weakness may easily create a new range of perhaps $29.50 to $32.00.

Presently the $30.00 strike has enormous potential and with today can be sold for 1.44 cents into July. If an investor entered into a stock investment today in Walgreens Stock they would pay presently $30.36 so the return for the $30 covered calls if exercised would be 3.55% less commissions.

Walgreens Stock In The Money Covered Calls Strategy 2 – For The Less Adventurous

For the less adventurous there is the strategy of staying at least 1 strike deep in the money. This means selling the $29.00 strike which for covered calls can be sold for $2.10 into July. The $29 strike is pretty compelling. At $29.00 Walgreens Stock has not been this low since 2010. There will be a lot of support at $29.00 in Walgreens Stock.

Making a stock investment today would mean buying the stock which is presently $30.36 and selling the $29.00 covered calls for a return of 2.4% less commissions. This stock investment provides an excellent return with plenty of protection. The in the money covered calls at $2.10 on Walgreens Stock means the break even is reduced to $28.26.

Walgreens Stock In The Money Covered Calls Strategy 3 – For The Worrier

Those who worry about their stock investment portfolio might want to consider buying the stock at $30.36 and selling the deep in the money covered calls at $28.00. Presently the $28 covered calls for July can be sold for $2.84.

This stock investment in Walgreens Stock would return 1.58% for a little over a month’s risk. The break-even on the stock investment is just $27.52 which puts an investor into the lows of 2010 for Walgreens Stock.

This strategy has top-notch protection and a very good profit.

Tweaking The Stock Investment Deep In The Money Covered Calls Strategy

There are some tweaks an investor could apply to this stock investment. One of the easiest would be to sell deep in the money covered calls into October, perhaps at the $28.00 strike which presently can be sold for $3.50. This could capture the next dividend which is in August and combined, this stock investment in Walgreens Stock would return:

Dividend: .225 cents

Oct Deep In The Money Covered Calls at $28: $3.50

Profit = $1.36 before commissions X $30.36 = 4.47% or slightly more than 1% a month. The break-even on this deep in the money covered calls trade would be $26.64 which is at the lows of the 2010 selloff in Walgreens stock. This is a 12.2% level of protection for 4 months risk.

Stock Investment In Walgreens Stock With In The Money Covered Calls Summary

There are lots of other tweaks which can be used for this stock investment including the reverse bond ladder where an investor staggers the in the money covered calls out in time and to a variety of lower strikes. That deep in the money covered calls strategy is a favorite of mine and allows for continually rolling and building up more and more protection with each subsequent roll. It also creates monthly income which for retirees is a great way to capitalize on a stock investment and profit on a stock trading in a narrow range. But that is beyond the scope of this article and I will discuss it in more detail in another article.

To sum up, a stock investment in Walgreens Stock through this strategy of deep in the money covered calls offers excellent profit potential and superior protection. In this stock investment an investor is selling in the money covered calls at rock bottom call strikes that have strong support through years of investors being in Walgreens stock. There’s a lot to like with this stock investment.