Put Selling vs. Buying Stock Instantly: My Journey with WBA

Walgreens Boots Alliance (WBA) was once a must-have stock for dividend investors, particularly those focused on dividend aristocrats—companies with a long history of increasing dividends annually. 

However, ever since WBA was removed from the Dow Jones 30 list, the stock has been on a persistent downtrend, culminating in a significant dividend cut. This shift has led many investors, including myself, to reconsider their strategies involving WBA. In this context, selling puts emerged as a more appealing approach compared to buying the stock outright. Drawing from my personal experience, I will illustrate why put selling can be a more advantageous strategy.

Understanding Put Selling

Put selling, or writing put options, involves selling the right to someone else to sell you a stock at a predetermined price (the strike price) within a specific timeframe. In return for this commitment, you receive a premium. If the stock price stays above the strike price, the option expires worthless, and you keep the premium. If it falls below the strike price, you might be required to buy the stock at that price, which can still be advantageous if managed correctly.

My Experience with WBA

In June 2023, I began selling puts on WBA, a stock known for its solid dividend yield. My initial strike price was around $28, a level I considered attractive for entry given the stock's historical performance and dividend payments.

Rolling Down the Strike Price

As WBA's price started to decline, I adjusted my strategy by rolling down the strike price, moving it incrementally from $28 to $22.5. This rolling strategy allowed me to manage the risk while continuing to collect premiums. Each roll not only adjusted my potential entry point but also provided additional income, mitigating the impact of the stock's declining price.

Final Assignment at $15

Ultimately, I got assigned the stock at a strike price of $22.5 when the actual stock price was around $15. Throughout this period, the premiums I collected exceeded $700, which offset the declining stock price. This approach allowed me to achieve a breakeven position—a much more favorable outcome than if I had purchased WBA outright at $28.

Advantages of Put Selling

The most immediate benefit of selling puts is the premium income. In my case with WBA, the collected premiums provided a buffer against the stock's price decline and contributed to an overall positive return.

Put selling offers flexibility to adjust strategies based on market conditions. By rolling down the strike prices, I managed my risk exposure and optimized my entry point, something not possible with a straightforward stock purchase.

Getting assigned at a lower strike price ($15 in my case) meant that my effective cost basis for the WBA shares was lower than the original $28 price point. This lower cost basis provides a margin of safety and potential for capital appreciation.

Despite the opportunity to sell covered calls after being assigned the shares, I chose to exit the trade with a small gain. This decision underscores another advantage of put selling: the ability to evaluate and decide on the next steps based on current market sentiments without being locked into a long-term position.

After 388 days of being in this trade I finally exited it with a small, but gain of $34.72. Much better result if I would would decided to invest at $28.56 and look on a book value at the stock price at $15.40.

Selling puts is particularly suitable for investors who want to test out ideas without committing to an immediate stock purchase. It offers the potential for income generation, risk management, and strategic flexibility. 

In my experience with WBA, put selling proved to be a more appealing strategy than buying the stock outright, especially in a declining market.

For investors looking to explore new trading strategies, put selling offers a compelling combination of benefits. While it's essential to stay informed and cautious, the potential rewards can be significant, making it a valuable tool in the investor's arsenal. As for WBA, while the stock no longer aligns with my investment goals, the lessons learned and the profits earned through put selling have been invaluable.