Collecting More Premium With AbbVie

Writing Calls Against This Dividend Grower

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AbbVie (ABBV) announced their earnings this morning that beat on both earnings per share and revenue estimates. They beat by a pretty significant margin too as they are integrated with their Allegan acquisition that was completed last year.

(Source)

That being said, just like any earnings that are announced that smash earnings - it still doesn’t matter or indicate which direction the stock can go. Earlier in the morning, the company’s shares seemed to be set for a large surge pre-market. They then dived after the open and as of typing seem to be reversing course and heading higher. You have got to love earnings volatility!

(Source - Google Finance)

For the full year, ABBV earned a diluted EPS of $2.72, adjusted diluted EPS of $10.56. Revenue was $45.804 billion on a GAAP basis, which translated to an increase of 37.7% on a reported basis (adjusted net revenues were $45.784 billion.) “Adjusted Net Revenue means the sum of Borrower’s (a) revenue as regularly computed and reported to the Board, minus (b) cost-of-sales associated with Borrower’s Enterprise Managed Services, each determined according to GAAP.”

In this report, Humira continued its revenue increase in the U.S. - where biosimilars aren’t a threat yet for a couple more years. Though they continued to be pressured internationally with net revenues at $3.72 billion which is a decrease of 13.6% on a reported basis, or 12.5% percent on an operational basis. For the quarter, it was a decline of 11.4% on the international Humira sales decline.

Skyrizi and Rinvoq continued their rapid increases for the quarter on a year over year basis.

(Source - ABBV News Release)

Even with the pressures internationally, they were able to grow the revenue of Humira as competition hasn’t happened in the states yet. This is really important to touch on, of course, as we can see the declines and the impact it is having internationally.

For the quarter, Humira accounted for ~37% of the net revenues. For the full 12-months, it accounted for approximately 43.3% of adjusted net revenues. Besides the benefits of Skyrizi and Rinvoq that are growing rapidly, Imbruvica and Venclexta were also putting up some healthy growth rates for the full year.

(Source - ABBV News Release)

So What’s The Trade

Well, with this one, I decided to not get too greedy only collecting a small amount of premium but here is my logic behind it;

I wrote a call on the February 12th, 2021 with a strike price of $111 - filled at $0.28 per contract or pocketed $28 per contract. This is a small amount to pocket over the next 9 days. Annualized this would work out to only around a ~10% return if we could do this trade every 9 days. However, that would be considering if we bought the shares at the strike of $111. Remember, this is a followed-up trade against this position we have in the first place after writing puts.

For that previous trade - we got assigned shares at $110 and collected $1.18 per contract. Meaning anything over $108.82 would be a profit in this case. The latest move of pocketing the $0.28 now positions us to a cost basis of $108.54 on these shares.

Fidelity tells me there is an 8.75% probability that ABBV will end up above our $111 strike price on February 12th. That means we have a good chance we will continue to hold onto our shares. If not, well then we collected a token amount of premium and would sell out at $111 a share. Remember, if at expiration ABBV is trading above this strike price, the shares will be called away. At which point, we could just begin the cycle over again!

I view it as a win-win-win situation. We either get to; (a) pocket this premium and look to continue writing more covered calls on the shares in the future if shares don’t nosedive, (b) we get the shares called away so we can look to sell puts again, or (c) share price heads lower and we get to just hang onto a company that has huge potential and is paying a ~5% dividend. Besides, I’m still long some of the shares as well, I didn’t put up all my shares for the chance of being called away.

Could we have waited for a better premium if shares continued higher later today? Probably. Could we also get a worse premium if shares declined. Yes. So just taking the profits where I can and not getting too greedy with this one.

Disclosure: Long ABBV

This is not investment advice but for entertainment purposes only. Any decision to buy or sell is solely made by that individual. Speak with a financial professional to develop an investing plan that is right for your own objectives and goals.