Investor Waits as AbbVie Approaches $280 Call
An investor who holds a block of 100 AbbVie shares faces a decision that could force a sale below the market price, depending on whether the stock ends the week above $280.
Why a Covered Call Was Chosen
The strategy began with a covered call sold against the position. By writing the call, the investor collected an upfront premium of $190 per contract, which translates to $1.90 per share. This cash inflow provided immediate income while the shares remained in the portfolio unless the option is exercised.
Details of the AbbVie Contract
The option in question is identified by the ticker “ABBV 261016C 0028000.” The “261016” segment represents an expiration date of October 16 2026 (YYMMDD), the “C” denotes a call contract, and the final numbers set a strike price of $280. Each contract covers a lot of 100 shares, so the holder must be ready to deliver that quantity.
Time until expiration falls within the investor’s preferred window of 30-90 days, a range that typically balances premium size with manageable risk. Volatility in the stock also contributed to the premium received.
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At the start of the week, AbbVie closed above the strike, but the price later slipped beneath that level. If the share price finishes the week above the strike, the call buyer will likely exercise, obligating the seller to part with the shares at $280 each. If the price remains below, the contract expires worthless, and the seller keeps both the shares and the premium.
Should the shares be sold at the strike, the investor would lock in a total return of 101.3% on the original purchase price of $154.14, not counting dividends already received. The dividend history includes $26.69 paid since June 2022 and an upcoming $1.73 ex-dividend payment.
Retaining the shares would allow the investor to repeat the covered-call process, potentially generating additional premiums while continuing to collect quarterly dividends.
As of the latest quote, the stock trades just under the strike, leaving the outcome uncertain until market close on Friday.
The writer explains that a call contract grants the buyer the right, not the obligation, to purchase the underlying shares.
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Basic Types of Options: Calls and Puts
A call and a put are the two fundamental option contracts. Both obtain their value from an underlying stock and from market expectations about whether the share price will rise or fall within a specified period.
The letter P denotes a put contract. It provides the buyer the right, but not the obligation, to sell a block of 100 shares to the option seller at any time up to the contract’s expiration date.
Strategic Considerations and Next Steps
The author selected the contract as part of an exit plan, aiming to secure gains while awaiting broader market movements.
Concern about a potential correction or sector rotation before the new year motivated the decision to lock in a portion of the upside.
