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

Dec. 02, 2020 10:16 AM ET
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  • 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.

Analyst's Disclosure: I am/we are short ABBV puts.

For educational purposes only. I'm a speculator, not a professional investor nor a financial advisor or analyst. I take no responsibility for how others trade. Options trading, like stock trading is risky. So is life.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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