Rolling The Dice With AbbVie
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I couldn’t help it any longer. In a sea of red today, ABBV was still rising. I had to pull the trigger.
(Source - CNBC)
The VIX was also green, so not everything was down. However, the major indexes that we gauge the “broader” market was down.
(Source - Google Finance)
Thus, we see premiums for writing covered calls on ABBV were continuing to rise as well.
I wrote the covered call for May 7th, 2021 at a strike of $111 collecting $1.55 per share or pocketing $155. This is well above their current dividend rate which we are still entitled to be paid out on May 14th, 2021 as the ex-div date was last week. This trade works out to nearly a 30% annualized return.
So why were we hesitating to pull the trigger in the first place? We explored that in the previous post that ABBV’s earnings are coming up on April 30th, 2021. Essentially, I was being greedy and was going to wait and see the earnings if it propelled the stock higher.
Well, after two more days of trading higher (yesterday and today) I didn’t want to wait anymore as premiums rose along with it. This same contract was going for $1.19 when we visited the potential trade over the weekend and looked at the numbers.
If ABBV has a good earnings report and the shares pop - we will ride the stock up to the max of $112.55 - after that - it would mean that we have resulted in limiting our upside. Anything above $111 and our shares will also be called away.
Fidelity tells us that the chances of ABBV trading above $111 by May 7th is actually in our favor. Though I don’t know how they possibly could calculate potential earnings “disruptions".”
(Source - Fidelity)
Regardless, if it gets called way then we continue the cycle just as we did all the way back in January. Where we got put the shares in the first place at $110. This $1.55 collected is also put on top of the $2.88 we collected previously as well. For a total of $4.43 in extra “income”, we squeezed out of ABBV ($443 per option contract.) Where we also are going to receive that $1.30. This already puts us up more than the annualized dividend of $5.20 a year - which is quite attractive in the first place. We still have many more months to go for this year as well.
Come next Friday, we will see if we made the right call or not. Luckily, it is a pre-market earnings announcement and we won’t have to wait all weekend to see how the market gauges the announcement!
(Source)
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.