Abbott is a good covered call candidate. In our IB account we purchased 100 shares on 4/1/21 and sold the May $120 Call option. We rolled the option to May $125 (if the stock drops today we might regret the roll up!).
Our unrealized return on capital for the position is 2.4% in 18 days or 49% annualized. We picked up the $.45 dividend on April 15.
Abbott missed revenue forecast for the quarter but exceeded EPS by $.05. If the stock experiences a dip we will likely add to our position as we like the long term prospects. We also own ABT in our Schwab accounts. It is a dividend aristocrat which is hard to find “on sale”.
Market had a positive day yesterday which helped Abbott with the bounce back up. Abbott was up by as much as $4 yesterday.
We reestablished the covered call position selling October 30 $111 Calls for $1.31 when the stock was trading at $110.
The combination of buying back the Oct 23 $107 call, selling the Oct 30 $111 call and rebound in stock price added over $7,000 of profit to the position which is generating $18,342 in profit.
Buying back short calls when a stock drops isn’t an automatic strategy we employ….but when we are confident in the stock it can generate short term profit.
EW (Edwards Lifesciences) stock had a similar experience to Abbott yesterday after announcing good quarterly revenue and earnings. Stock dropped $4. With market poised to opend up it could follow a similar trend as Abbott….but don’t take this as a recommendation….just identifying a similar pattern on another high quality medical device company.
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).
Our Covered Call strategy on ABT was established on May 26. Since that time we have added to the position with 300 shares on 6/25 and 400 on 8/21. Covered Calls on Abbott have performed well aided by a strong upward move in the stock. We have rolled the options 13 times and had two expirations. Abbott is attractive for CC Writing as it trades weekly options, potential for growth on the stock price and pays a dividend.