Mark’s Best Idea for 2021

Trader’s,  

I have about 15 good ideas for longer term trades in 2021.  

But, I want to share with you what is probably my favorite pick for 2021.  Using my BETS system

Background:  

We are about to start distributing the Covid-19 Vaccine in what is going to be the largest inoculation campaign in US history.

The United States Government will inoculate at least 200 million people next year.

Here is a question for you:  where are people going to get vaccinated?

Some might go to their doctors,  but by and large people are going to go to a pharmacy to get vaccinated.

Some will get it at their Supermarkets Pharmacy,  some might go to Costco or Walmart.

The vast majority though will get their inoculations at the giant chain pharmacies.  This means Walgreens and CVS.

I think CVS is a compelling name and I like it.  But the stock that I think has the most upside is WBA:  the Walgreens Boots Alliance.

Not only will WBA be inoculating people in the United States,  but they will do so in the UK,  Ireland,  Italy and several other countries across Europe through the Boots Pharmacy.

After getting the shot,  patients are monitored at least 15 minutes to make sure they do not have an allergic reaction.

What are people to do while they wait?

My guess:  walk around the store.

This will absolutely cause an increase in sales.  In addition,  when people see how easy it is to get in and out of those health clinics,  they will likely use them again.

I can tell you that I tried it once with my son,  and it was so easy,  that anytime he has a mild illness I got to a Walgreens or CVS clinic.

This again will lead to sales.

Think about it,  if WBA puts out 50 million shots,  how much more in sales will that produce?

I think there is tremendous upside in the stock that is not priced in right now.  I think the stock is going to go to at least 60 in the 1st half of the year.

ENERGY

Lets pull up a chart of implied volatility in WBA:

The red line is near dated implied volatility,  the yellow line is volatility a year out.

Yes,  the IV’s were lower a year ago,  but in a post covid volatility world the premiums are pretty cheap.

This means I do not mind buying options to express my opinion in WBA.

Especially given that I expect movement to increase dramatically, and in one direction over the next 6 months.

I would be a premium buyer.

Time:

I am pretty darn sure WBA is going to take off in the 1st half of the year,  I am just not sure when.

This means I need time on my side.

With long term IV not overly expensive,  I can set up a trade in the LEAPS knowing I have a year for the trade to work.

When I am not sure of the exact timing and volatility is cheap,  I go far out in time.  In this case I will be trading in January of 2022.

Strategy:

With the volatility low relative to the last year,  but high relative to long term premium levels in WBA I COULD opt for a spread.

But I do not want to cap my upside in Walgreens Boots Alliance.

This means I am going pretty darn plain Vanilla.

I am going to buy an At the Money call in January 2022.

The 40 calls only cost a touch over 5 dollars. If I think 60 is on the horizon,  the risk to reward payoff is about 3 to 1,  that is great.

I COULD sell a put to reduce the cost,  but I want to keep things pretty simple for the intents of this letter.

Thus next week I am going to buy the WBA January 2022 40 call for about 5-5.50 a contract.

Here is the payoff graph:

Now:  here is a little bonus info:

If I buy 10 contracts,  my 1st sale is going to be about 40% of the position at 10 bucks.  My next sale will be 3 more contracts at 15 dollars.  Then I will let the rest ride.

If we get to June and the stock is not moving yet,  I will exit the position.

If the stock tanks for some reason,  I will dump out of my calls at about 3.00.

I am trying to make my cost plus more on the 1st 2 sales and then I can let the rest ride.  

So there you have it,  my BETS analysis and my plan for WBA going into 2021.

Happy New Year!

Your Only Option

Mark Sebastian


DISCLAIMER: FOR EDUCATIONAL AND INFORMATION PURPOSES ONLY; NOT INVESTMENT ADVICE. The materials presented from Option Pit LLC are for your informational and educational purposes only. Neither Option Pit LLC nor its employees offer investment, legal or tax advice of any kind, and the analysis displayed with various tools does not constitute investment, legal or tax advice and should not be interpreted as such. Using the data and analysis contained in the materials for reasons other than the informational and educational purposes intended is at the user’s own risk. 

DISCLAIMER: OPTION PIT LLC IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER. Option Pit LLC is not responsible for any losses that may occur from transactions effected based upon information or analysis contained in the presented materials. Specific trading ideas or strategies discussed in the presentations or materials are entirely illustrative and do not constitute the solicitation of a transaction (or transactions) or a recommendation to execute a particular transaction or implement a particular trading strategy.

DISCLAIMER: TRADE AT YOUR OWN RISK; TRADING INVOLVES RISK OF LOSS; SEEK PROFESSIONAL ADVICE. To the extent that you make use of the concepts with the presentation material, you are solely responsible for the applicable trading or investment decision. Trading activity, including options transactions, can involve the risk of loss, so use caution when entering any option transaction. You trade at your own risk, and it is recommended you consult with a financial advisor for investment, legal or tax advice relating to options transactions.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.