WBA Trade Ideas

Walgreens has been absolutely decimated lately. Having hit a high of $85.79 in December last year, the stock is now down over 35% and is sitting at $54.84.

This includes a nearly 15% drop just a few days ago.

As an options trader, I LOVE volatility like this as it throws up some excellent trade opportunities.

Long-term, I think the stock has some work to do before experiencing a meaningful recovery.

In the short-term, I feel like we might see sideways to slightly lower prices.

I’ve seen this play out a number of times over the last few years. TGT is a stock that has done this a number of times in recent years and is also a stock being impacted by the Amazon juggernaut.

Here is an example from 2018-2019. After the initial drop, TGT had a bounce but eventually ended around 3% lower 17 trading days later.

If WBA were to do the same thing and drop another roughly 3% over the course of the next 3-4 weeks, that would put it around $53.

With that in mind, I like a trade called a Put Ratio Spread which involves selling a short-term put and buying a longer-term, further out-of-the-money put for around the same price.

Here is an example set up below. Notice that we have very little risk on the upside, only about $120.

You can’t see it on the graph, but the bulk of the risk is on the downside with a maximum loss of $2,370 if WBA drops below about $43.

The trade has a nice profit zone between $52 and $55 which is about where I think WBA might end up in 14 days time.

My profit target on the trade would be 10%, so about $230 and my stop loss would be the same OR if WBA dropped below $51.50.

Hope you liked this trade, check back in a few weeks to see how it worked out.