Yesterday we adjusted our ABT covered call position based on the $2 drop following the earnings announcement. The earnings call was positive with the company communicating excellent results and increasing annual revenue and earnings guidance. So why the drop?
Historically we have found opportunity when a stock we like announces good results and it drops…..usually a temporary dip influenced by short sellers and investors who play the news. Our experience is within a week the stock is likely to rebound. To take advantage of the dip we buy back the short options and wait a few days before selling another call to return to a covered call strategy.
Yesterday we bought back the Oct 23 $107 Call options for $.85 (sold on Oct 19 for $2.87). We are looking for a bounce over the next few days with plans to sell Oct 30 calls to re-establish the covered call position.
We established the ABT covered call on 5/26 and adjusted (rolling up, down and out) the short calls on a weekly basis over the past 148 days. During this period the company has also paid two dividends of $.36 generating $1,440. Overall the position is generating a profit of $11,192,ROI of 41% or 101% annualized (2,000 shares).
We like Abbott as a candidate for covered call writing. Weekly options. Growth stock. Quarterly dividend. Reasonable premiums (usually 1-2% per week).