Happy weekend!
I received a lot of emails last week about how I'm dealing with the Walgreens assignment and will elaborate a little more on that this week.
This week:
$53 profit in Pepsi (PEP)
More information on dealing with assignment in Walgreens (WBA)
$53 profit in PEP
When people sign up for my options course, I tell them after the first 2 days of classes, they'll be ready to enter and manage option trades independently. This was shown to be true as I entered a trade in PEP on Monday (just a week after the live classes), which was closed by Thursday. A few people from the July course decided the trade was right for them and entered a similar trade, resulting in $53 in realised profit in 4 days.
Of course, not every trade is going to be taken off this quickly for profits, but this is exactly why we manage positions and lock in profits early, so that when the next opportunity comes around, we have the capital ready to be deployed.
As always, if you have a basic understanding of options and would like to receive trade updates from my real portfolio (not recommendations), feel free to check out my Bread Crumb subscription.
It costs $49/month, ie this one trade would have paid for itself.
Dealing with assignment in WBA (part 2)
If you've been following this newsletter for a while, you'd know WBA is one of those stocks I constantly trade, and there have been two or three times over the last year where it came close to being assigned, but somehow avoided it. In last week's newsletter I mentioned that the premium from previous trades would help to offset the cost basis. But let's treat the trade as an independent trade - ie this was the only trade. I was assigned 100 shares of WBA at $32.50, and received $94 in premium on this trade. So my cost basis is (100 x $32.50) - $94 = $3,156, or $31.50 per share. Normally, when one gets assigned shares, the course of action is to sell covered calls. However when the stock price is trading below the cost basis, that can be hard. Last week when WBA was trading at $29.20 for example, I was only able to get less than $10 to sell a covered call at the $32.50 strike. Not worth it. So what do we do? I'll continue to try to lower the cost basis by selling whatever options I can, in this case more cash-secured puts.
You can see from the screenshot above that since getting assigned, I sold 2 other cash-secured puts, this time at the $27.50 strike. Both were closed for $73 realised profit in total.
Going back to our cost basis, that lowers it further to $30.83.
On Friday, WBA closed at $30.46, so we're nearly at breakeven.
Based on Friday's prices, I could sell a covered call at the $30 strike for $1.27, or a covered call at the $32.50 strike for $0.33
In the first scenario, assuming the covered call does get exercised, I will be selling my stock for a total of (100 x $30) + $137 = $3,137. That's a $54 profit.
In the second scenario, stock will be sold at (100 x $32.50) + $33 = $3,283, or $200 profit.
How one would decide which strike to sell or whether to just hold and collect the dividends is up to the individual investor.
This was a very broad overview that just explored the covered call option. I cover how to deal with assignment in much more detail in my options course.
That's it for this week - there's quite a few stocks on my watchlist reporting earnings next week. Hoping for a few opportunities to enter new positions. If you want to take control of your finances, I've launched a budget and wealth tracker that can help you do that (check out the demo video!) Also on Youtube: all my dividends from Jan - Jun 2023
This article is for educational purposes only. This is my own portfolio which is being managed according to my goals and risk tolerance. Your situation is likely different and you should do your own due diligence before investing in stocks or options.