How Walgreens Boots Alliance Options Bears Banked a Quick 100% Profit

WBA stock fell to a multi-year lows this week

Managing Editor
Oct 12, 2017 at 3:39 PM
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Subscribers to Schaeffer's Option Advisor service recently scored a 100% profit from January 2018 82.50-strike Walgreens Boots Alliance Inc (NASDAQ:WBA) puts. Below, we'll break down why we were bearish on WBA and how the successful options trade unfolded. 

On Sept. 20, the Federal Trade Commission (FTC) approved Walgreens Boots Alliance's bid to buy roughly 42% of Rite Aid stores. The news sent WBA stock plummeting below a trendline that had connected its higher lows since mid-June. When the dust finally settled, the shares were staring up at their year-to-date breakeven level in the $82.50-$83.00 area, which had also acted as resistance after WBA's mid-May bear gap.

Despite this dismal technical backdrop, sentiment toward the pharmacy stock was strongly bullish. Of the 16 brokerages that were covering WBA, 14 rated the shares a "buy" or "strong buy," without a single "sell" to be found. A round of well-deserved downgrades could certainly spark headwinds for the shares.

In the options pits, WBA's Schaeffer's put/call open interest ratio (SOIR) was docked at 0.19 -- below 100% of all other readings taken in the last 12 months. This means short-term options traders had rarely been as call-heavy toward the equity as they were at that point. An unwinding of optimism in the options pits would likely exacerbate even more selling pressure on Walgreens shares.

To make matters worse, rumors began swirling late last week that Amazon is close to finalizing details on a potential push into the prescription drug industry. The reports sent WBA stock spiraling to multi-year lows earlier this week -- and had OA subscribers closing out their bearish put option with a cool 100% profit.

WBA Postmortem 2

 

 

 

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