Walgreen Blows through Expectations- CVS is today’s play.
Walgreen’s beat quarterly estimates with August quarter results of $0.49 versus $0.44 . Analysts had been looking for flat year-over-year results.
WAG has surged by 10.7% through 11:40 this morning.
It’s too late to play WAG but not to jump in with the sale of some January 2012 LEAP puts on CVS which is likely to be seeing the same business climate but is on a calendar reporting year.
CVS is up about 3% in sympathy but still looks extremely cheap at $31.50 at 11.6x the current year estimate of $2.71 and 10.5x the 2011 view. Both these estimates are subject to upward revision after seeing the WAG numbers.
I just sold some CVS Jan. 2012 $30 puts for $3.80 /share giving me a $26.20 break-even and a 16.8% margin of safety from the current quote of $31.50.
The bid on the Jan. 2012 $25 puts is still above $2 as I’m writing.
Disclosure: Author is long CVS shares and short CVS and WAG options.
CVS’s Sympathy Rally Inspires Bullish Options Activity
By Andrew Wilkinson
Posted: September 28, 2010 - 4:25pm
CVS - CVS Caremark Corp. – The better-than-expected fourth-quarter earnings report from Walgreen Co. this morning helped CVS’s shares higher during the trading session. Shares rallied as much as 3.365% to rein in an intraday high of $31.64. The increase in the price of the underlying stock inspired one options player to extend bullish sentiment on the stock by initiating a calendar roll. It looks like the investor purchased 10,000 calls at the November $30 strike at a premium of $1.11 each back on September 17, 2010, when shares were trading around $29.72 each. The surge in shares since the purchase bumped up premium on those now in-the-money calls, which the investor sold today for a premium of $2.09 apiece. Net profits on the sale amount to $0.98 per contract. Next the investor renewed optimism on CVS by purchasing a fresh batch of 10,000 calls at the higher January 2011 $32 strike at a premium of $1.64 a-pop. Profits on the new position are available to the trader if CVS’s shares jump 6.3% to surpass the effective breakeven price of $33.64 by expiration day in January.