WBA will replace GE in the DJI ahead of next Tuesday's open
Following recent headlines that Twitter (TWTR) joined the S&P 500 Index (SPX), news hit last night that Walgreens Boots Alliance Inc (NASDAQ:WBA) will replace General Electric Company (NYSE:GE) on the Dow Jones Industrial Average (DJI) ahead of the open next Tuesday, June 26 -- ending the latter's 110-year run as a member of the 30-stock index. This is also the first change to the blue-chip index since Apple (AAPL) joined the Dow back in 2015. WBA stock has had a rough 2018, but is signaling a positive start today, trading up 3.4% at $66.80.
Looking closer at the charts, Walgreens shares had shed 20% since hitting their year-to-date high near $81 back in late January -- a region that coincided with their 320-day moving average at the time -- based on last night's close at $64.61. The stock has been ushered lower by its 80-day moving average since early February, and this trendline could come into play today, with it last seen at $65.45.
Sentiment among options traders has been relatively complacent, with total open interest of 159,140 contracts ranking in just the 1st percentile of its annual range. By comparison, open interest hit a 52-week peak of 475,137 contracts on Dec. 15.
Drilling down, the January 2019 85- and 87.50-strike calls are WBA's top two positions, where nearly 28,000 contracts reside. The bulk of this options were initiated last October when GE was trading near $64.50, though it's not clear whether they were bought or sold.
Among shorter-term strikes, the July 90 call is at the top of the list, with 10,325 contracts outstanding here, though most of these contracts were opened in early December. More recently, options traders have targeted July 62.50 puts -- which have seen the biggest increase in open interest over the past 10 days. Data from Trade-Alert suggest most of these options were sold to open yesterday.
If this is the case, traders could rest easy knowing WBA stock has consistently rewarded premium sellers over the past year. The security's Schaeffer's Volatility Scorecard (SVS) of 34 indicates Walgreens Boots Alliance has tended to make undersized moves over the past year, relative to what the options market has priced in.
Today, call traders are active out of the gate, with 4,123 contracts traded already -- compared to an average daily volume of 3,507 calls. The weekly 6/22 67-strike call is most active, and it seems safe to say new positions are being purchased for a volume-weighted average price of $0.38. If this is the case, breakeven for the call buyers at this Friday's close is $67.38 (strike plus premium paid).