Established Covered Calls in Abbvie Inc.

Today, a Covered Calls position was established in Abbvie Inc. (ticker ABBV) with the purchase of 200 shares at $136.86 per share and two October 21st, 2022 Call options were sold for $8.24 per share at the $130.00 strike price.  This transaction occurred as a buy/write limit order at a net debit of $128.62 per share.  The corresponding time value (aka extrinsic value) in the Call options was $1.38 per share = [$8.24 Call options premium received - ($136.86 stock purchase price - $130.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at 74.5 when this buy/write transaction was executed, which approximates the probability of assignment on the options expiration date. 

Abbvie goes ex-dividend at $1.41 per share (4.1% annualized dividend yield at the current stock price) on October 13th which is prior to the October 21st options expiration date, so this dividend is included in the potential return-on-investment results shown below.  In addition, as shown in the chart below at the end of this blog post, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position.

Abbvie meets all five primary criteria currently preferred for new positions established by the Covered Calls Advisor (as shown below):

Abbvie is a research-based pharmaceutical company with a strong pipeline in immunology, oncology, neuroscience plus targeted efforts in cystic fibrosis and women's health.  They acquired Allergan (think Botox) two years ago which is aiding Abbvie's growth prospects.  Its #1 drug (Humira) faces biosimilar competition beginning in 2023, so its aggressive pipeline and acquisition strategy is designed to mitigate the upcoming revenue decline from that event.  But the Covered Calls Advisor does not view Abbvie as a long-term core holding.  Instead, because of its generous dividend, it will continue to re-evaluated each quarter as a Dividend Capture Strategy candidate. 

Two potential return-on-investment results are: (a) +1.1% absolute return (equivalent to +29.9% annualized return-on-investment for the next 13 days) if the stock is assigned early on the day prior to the October 13th ex-dividend date; or (b) +2.2% absolute return (equivalent to +35.9% annualized return-on-investment for the next 22 days) if the stock is assigned at market close on the October 21st, 2022 options expiration date.  

 

Abbvie Inc. (ABBV) -- New Covered Calls Position
The simultaneous buy/write transaction was as follows:
9/30/2022 Bought 200 shares of Abbvie Inc. stock @ $136.86 per share 
9/30/2022 Sold 2 ABBV October 21st, 2022 $130.00 Call options @ $8.24 per share.  The Implied Volatility of these Calls was 31.4 when this position was established.
10/13/2022 Upcoming ex-dividend of $1.41 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $25,725.34
= ($136.86 - $8.24) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,646.34
= ($8.24 * 200 shares) - $1.34 commission
(b) Dividend Income (If Abbvie shares assigned on 10/12/2022, the business day prior to the 10/14/2022 ex-dividend date): = +$0.00; or
(b) Dividend Income (If Abbvie shares assigned at the October 21st, 2022 options expiration): +$282.00
= $1.41 per share x 200 shares
(c) Capital Appreciation (If ABBV shares assigned early on Oct. 13th 2022): -$1,372.00
= ($130.00 strike price - $136.86 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If ABBV shares assigned with stock above $130.00 strike price on the Oct. 21st, 2022 options expiration): -$1,372.00
= ($130.00 strike price - $1136.86 stock purchase price) * 200 shares

1. Potential Net Profit (If Abbvie shares assigned early on 10/12/2022, the day prior to the ex-dividend date): +$274.34
= (+$1,646.34 options income +$0.00 dividend income - $1,372.00 capital appreciation)
2. Potential Net Profit (If ABBV price is above $130.00 strike price at October 21st options expiration): +$556.34
= (+$1,646.34 options income +$282.00 dividend income - $1,372.00 capital appreciation)

1. Absolute Return-on-Investment (If ABBV shares assigned early on the day prior to the Oct.13th ex-dividend date): +1.1%
= +$274.34/$25,725.34
Equivalent Annualized Return-on-Investment (If assigned early on day prior to ex-div date): +29.9%
= (+$274.34/$25,725.34) * (365/13 days)
2. Absolute Return-on-Investment (If Abbvie price is above $130.00 strike price at the October 21st options expiration date): +2.2%
= +$556.34/$25,725.34
Equivalent Annualized Return-on-Investment (If assigned on the 10/21/2022 options expiration date): +35.9%
= (+$556.34/$25,725.34) * (365/22 days)

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, all 9 criteria are achieved for this Abbvie Inc. Covered Call position.