Walgreen Put Player Cleans Up on Post-Earnings Rally

WAG – Walgreen Company – Shares of the largest U.S. drugstore chain rallied as much as 11.3% today to touch an intraday high of $33.78 following the release of better-than-expected fourth-quarter earnings. Walgreen’s said it earned $0.49 a share in the quarter on revenue of $16.87 billion, which beat average analyst forecasts of $0.44 a share in net income on revenue of $16.84 billion. One options strategist was properly positioned to benefit from bullish movement in Walgreen’s shares today. It looks like the investor sold approximately 35,000 puts at the October $27 strike for an average premium of $0.17 apiece back on September 20, 2010, when WAG’s shares were trading around $29.25. Premium on those put options collapsed with the jump in shares, allowing the investor to buy back the short position at just $0.04 in premium per contract. Net profits on the transaction amount to approximately $0.13 per contract or $455,000. Next, the investor extended bullish sentiment on the stock by rolling the short stance in some 35,000 puts up to the higher October $31 strike for which he received premium of $0.14 each. The trader keeps the full premium pocketed on the fresh sale of put options at the October $31 strike as long as WAG’s shares exceed $31.00 through expiration day next month. The overall reading of options implied volatility on Walgreen Co. fell 13.5% to 24.74% following earnings. Options traders exchange more than 124,400 contracts on the stock by 12:20 pm ET.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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