ABBV Covered Calls, Capital Gains, Naked Puts, Dividend Paid 10% Plus

Summary

• Generally avoiding politicized Big Pharma stocks.
• But bought ABBV, sold covered calls for two months.
• Stock called.
• Also sold December naked puts.
• Collected dividend.

By Donald E. L. Johnson

The Falcon Method evaluates four Big Pharma stocks, including ABBV because Berkshire Hathaway has initiated positions in them. I wrote this comment on the article.

BRK.B's time horizon is forever until it isn't and it takes its profits and losses like other speculators.

For more than a year, because of politicians who hammer big Pharma on pricing and think price controls and socialized medicine is the cure all, I've avoided drug companies.

But on Oct. 30, I bought ABBV for $87.62 and sold 22-day ABBV Oct $88.50 covered calls at $1.34/share. That gave me an immediate return on risk of 1.53% and an uncalled ROR of 25.37% annualized.

After that contract expired and I took profits on the trade, on Nov. 2 I sold 18-day ABBV Nov $95 strike covered calls at $0.39. That gave me an immediate RoR of about 0.45%. By expiration on Nov. 20, ABBV was well above the $95 strike and my options were called.

That gave me about an 8.9% capital gain plus the 1.53% income from the previous month's trade. And I collected a $1.30 dividend in early November.

On Nov. 18, I sold ABBV Dec. 18 $95 puts at $1.09 per share. That gave me an immediate RoR of 1.1% assuming ABBV will close at expiration above $95. When I made the trade, ABBV was at $99.40 and rising. The $95 strike offered a 4.4% discount from the current stock price. At the moment, ABBV is trading at $104.04, down .52% on the day.

Annualized, my puts trade would give me a RoR of about 13%. That assumes that I'd do the same exact trade 12 times a year, which is impossible because prices and markets are volatile.