Stock Investment Protect And Profit In Walgreens Stock

The Best Stock investments often arrive when you least expect them. The problem is knowing whether it is a good stock investment at the time, but there are simple put selling and covered calls strategies that can be used to tilt the stock investment in your favor. Walgreens Stock took quite the tumble on Tuesday and again today (June 20 2012) on the news they are buying almost half of Alliance Boots, a European drug chain. This is a monumental move for Walgreens and an expensive one with the price tag of 6.7 billion dollars. Walgreens stock symbol is WAG and it trades on New York. Walgreens Stock is a stock investment held by millions of investors, large and small. You can check out Walgreens Stock through this stock investment link.Walgreens has had ups and downs over the last three years but it will be difficult for investors to fully calculate the valuation of Walgreens stock until the entire transaction is completed and a few quarters of earnings prove or disprove the value of this purchase. As a stock investment there is a lot to like and to dislike about this Alliance Boots purchase. Walgreens will take on a lot more debt to purchase Alliance Boots.

Meanwhile analysts yesterday were telling investors that for those interesting in Walgreens stock as a stock investment, now is the time to get in. But today it is down another additional 4%. Is this the time to buy? I think there are better solutions for those interested in Walgreens Stock as a stock investment, whether long-term or short-term. A couple of simple option trades will provide a better stock investment in Walgreens Stock with profit potential and some protection.

Walgreens Stock Increases Dividend

Meanwhile Walgreens Stock has had another dividend increase.  The dividend is increasing from .225 a quarter to .275 a quarter for a 22% increase in their dividend payout. As far as a stock investment, the jump in dividend will be welcomed but this means that almost 50% of earnings are going towards the dividend payout. Is this a good thing or was management trying to prop up Walgreens stock.

Is Walgreens Stock A Good Stock Investment

The decision whether Walgreens Stock is still a good stock investment is difficult to say at this point. Walgreens was already losing market share in the USA but the dividend appeared safe for a few years to come. This purchase for 6.7 billion changes the outlook and places an unknown into the mix making it a tough choice for a stock investment.

For short-term investors it is best to wait for some signals from the technical timing indicators which way the stock is headed before trading either up or down in Walgreens Stock.

Consider Put Selling The January 2013 $30 Strike

But for longer term investors why buy here at $28? Instead consider earning 10% for next 7 months and sell the January 2013 $30.00 put for $3.25. This provides a full 10.8% return, and if the stock closes above $30.00 by January you keep the entire $3.25 earned through put selling the $30 strike.

If the stock should fall further, you are protected down to $26.75 in the stock.

Stock Investment Walgreens Stock Puts

Consider put selling Walgreens Stock as a means to profit and protect your stock investment while the market sorts out where Walgreens Stock is headed.

Want To Own This Stock Investment For Sure? Consider These Put Strikes

For those investors who are concerned that Walgreens stock may run higher and they want to be sure to own Walgreens Stock, you could consider selling higher January put strikes.

The January $32 Walgreens Stock Put can be sold for $4.60 which provides protection to $27.40 and the stock has to close above $32.00 for you not to be assigned shares.

The January $33 Walgreens Stock Put can be sold for $5.35 which provides protection to $27.65 and the stock has to close above $33 for you not to be assigned shares.

Stock Investment Through Covered Calls In Walgreens Stock

The same stock investment in Walgreens Stock can be done through buying the stock now at $28.00 and selling the January 2013 $30.00 strike for $1.60. The $1.60 plus the next two dividend payments of .275 each equals a total return of 7.6% and if Walgreens stock should climb from $28 to $30 by January you will earn an additional 7.1% for a total return of 14.7%.

Selling the covered call also means that by January if the call should expire you will have protected your Walgreens Stock to $25.85 if you take the dividend payouts into account.

As A Stock Investment Buy and Hope Is Not For Everyone

As far as a stock investment goes, buying Walgreens Stock for its 3.9% dividend and hoping everything works out is not for everyone. The total dividend for the next four quarters will be $1.10. This does not provide a lot of protection. When making a stock investment investors must consider the risk associated with the stock investment. Walgreens Stock in the crash of 2008 to 2009 got as low as $21.56. If management does not make this 6.7 billion purchase work, the stock could easily fall that low again.

That said, this could be a great move on the part of management and Walgreens stock could become an excellent stock investment again. But as an investor I want protection and profit. Stepping into a falling stock often seems like a brilliant move until that stock investment not only fails to recover but continues to collapse.

The purchase of Alliance Boots could hurt earnings and depress the stock price further. Earnings are already declining with Walgreens stock. By increasing the dividend payment a full 22% and paying out half of the quarterly earnings in dividends, Walgreens may end up having to cut the dividend or not increasing it next year.

With this type of stock investment I want some form of protection to give myself room to maneuver and to change my mind if I found that Walgreens Stock starts to drop. At least through the use of options I am locking in a better return than the dividend can provide and I have protection. If the stock recovers and I am exercised out of my position I have made a great profit and I can reassess the stock investment at that time.

When it comes to a stock investment in Walgreens Stock, there are enough problems right now to make any investor think twice about simply buying stock and hoping it this stock investment works out.

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  • khan

    here is a different strategy…short oct $33 put and long dec $29 put for a credit of $1.94. down side risk is much much lower than upside potential. if stocks takes a dump..sell the long put and start writing call on the assigned stock.

  • Nothing wrong with this strategy as you are basically setting up a spread. It all comes down to the goal of the investor. The article is written for those investors who want stock but would like a 6 month windows to assess the stock before committing to actual shares. Your strategy has lots of advantages as well. Thanks for posting.
    Teddi Knight