Established Covered Calls in Abbvie Inc.

Today, in the last half-hour of trading, a short-term Covered Calls position was established in Abbvie Inc. (ticker ABBV) with the purchase of 200 shares at $134.11 per share and two July 21st, 2023 Call options were sold for $2.55 per share at the $132.00 strike price.  This transaction occurred as a buy/write limit order at a net debit limit price of $131.56 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.44 per share = [$2.55 Call options premium received - ($134.11 stock purchase price - $132.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at 74.4 when this buy/write transaction was executed, which approximates the probability of assignment on the options expiration date.  As I prefer, there is no quarterly earnings report prior to the options expiration date.

Abbvie goes ex-dividend at $1.48 per share (4.4% annualized dividend yield at the current stock price) on July 13th which is prior to the July 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, eight of the nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position.

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) about three years ago which is aiding Abbvie's growth prospects.  Its #1 drug (Humira) is now beginning to face biosimilar competition, 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.

The midpoint of Abbvie's FY2023 EPS estimate is now $10.77 per share which is a P/E Ratio of 12.5 and analysts' target price of $165.08 is +23.1% above today's stock purchase price.

Two potential return-on-investment results are: (a) +0.3% absolute return (equivalent to +40.1% annualized return-on-investment for the next 3 days) if the stock is assigned early on the day prior to the July 13th ex-dividend date; or (b) +1.5% absolute return (equivalent to +44.2% annualized return-on-investment for the next 12 days) if the stock is assigned at market close on the July 21st, 2022 options expiration date.  

 

Abbvie Inc. (ABBV) -- New Covered Calls Position
The simultaneous buy/write transaction was as follows:
7/10/2023 Bought 200 shares of Abbvie Inc. stock @ $134.11 per share 
7/10/2023 Sold 2 ABBV July 21st, 2023 $132.00 Call options @ $2.55 per share.  The Implied Volatility of these Calls was 13.8 when this position was established.
7/13/2023 Upcoming ex-dividend of $1.48 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $26,313.34
= ($134.11 - $2.55) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$508.66
= ($2.55 * 200 shares) - $1.34 commission
(b) Dividend Income (If Abbvie shares assigned on 7/12/2022, the business day prior to the 7/13/2023 ex-dividend date): = +$0.00; or
(b) Dividend Income (If Abbvie shares assigned at the July 21st, 2023 options expiration): +$296.00
= $1.48 per share x 200 shares
(c) Capital Appreciation (If ABBV shares assigned early on July 13th 2023): -$422.00
= ($132.00 strike price - $134.11 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If ABBV shares assigned with stock above $132.00 strike price on the July 21st, 2023 options expiration): -$422.00
= ($132.00 strike price - $134.11 stock purchase price) * 200 shares

1. Potential Net Profit (If Abbvie shares assigned early on 7/12/2022, the day prior to the 7/13/2023 ex-dividend date): +$86.66
= (+$508.66 options income +$0.00 dividend income - $422.00 capital appreciation)
2. Potential Net Profit (If ABBV price is above $132.00 strike price at the July 21st options expiration): +$382.66
= (+$508.66 options income +$296.00 dividend income - $422.00 capital appreciation)

1. Absolute Return-on-Investment (If ABBV shares assigned early on the day prior to the July 13th ex-dividend date): +0.3%
= +$86.66/$26,313.34
Equivalent Annualized Return-on-Investment (If assigned early on day prior to ex-div date): +40.1%
= (+$86.66/$26,313.34) * (365/3 days)
2. Absolute Return-on-Investment (If Abbvie price is above $132.00 strike price at the July 21st options expiration date): +1.5%
= +$382.66/$26,313.34
Equivalent Annualized Return-on-Investment (If assigned on the 7/21/2023 options expiration date): +44.2% 

= (+$382.66/$26,313.34) * (365/12 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, eight of the 9 criteria are achieved for this Abbvie Inc. Covered Calls position.