Walgreen Options (WAG): Unusual Trading Activity
Options in drugstore chain Walgreen (WAG) experienced a large amount of unusual trading activity yesterday.
Walgreen’s stock was up slightly yesterday but is down 1.5% to $35.31 this morning.
I think this comes on the heels of all of the consolidation lately amongst the big drug companies… including a fear that Express Scripts (ESRX) will wind up costing Walgreen’s a good amount of market share.
However, option traders are treating the pullback as a buying opportunity.
I think traders believe WAG offers unmatched convenience, a highly recognized brand name, and outstanding customer service compared to other drugstore chains.
Yesterday afternoon, a few traders came in and purchased the WAG October $36 strike call options at an average price of $0.80.
There were several large block trades that added up to around 15,000 contracts. Now that’s a hefty amount.
This puts the total wager on WAG stock going higher by October expiration at $1,200,000.
And don’t forget… since these are straight call options, the upside potential here is unlimited. You can bet these traders would like to see this stock at $45 or $50 per share!
So, let’s take a look at a little history.
As you probably know, Walgreen’s operates a chain of drugstores in the United States. It sells prescription and non-prescription drugs as well as an array of general merchandise and household products.
In addition, WAG operates in-store and work-site health clinics.
I think this, as well as other positive news, is what has option traders so excited.
Walgreen’s slowing store growth should result in higher margins moving forward… as new stores often post losses in their first year and mature stores have operating margins considerably higher than the overall company.
In addition, health care spending growth, the aging population, and the generics wave provide secular tailwinds that boost Walgreen’s results. These trends should increase top line growth going forward.
Lastly, WAG could have a huge new opportunity in work-site and in-store health clinics. These services can provide basic care more cheaply than doctor’s offices and hospitals.
What’s more, these clinics also have the potential to increase store traffic and prescription volumes.
Bottom line…
Option traders think October’s expiration is going to be a very lucrative one for Walgreen calls. We’ll see.
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
