I have exited ADM.
music selection: “Tumbling Dice” — The Rolling Stones
weigh-in: 208.2 (1.6)
First up is house cleaning. I exited my trade in Archer-Daniels-Midland (ADM) with a 352 dollar loss, net of all options premiums collected. The covered call at 40 resulted in shares being called away at a 1,000 dollar loss but premiums to date collected make up the difference. The loss is 3.91% or 0.64% annualized. I’m glad to have some portfolio deadweight gone.
Express Scripts (ESRX) strikes me as a dog. At first blush it appears to be a great business trading at a fair price. But if you dig deeper you see it is troubled. The main customer (Anthem) makes up about 30% of revenue and is very upset with them. They are leaving after their contract ends in a couple years to take the services provided by ESRX in house. But they are also suing ESRX for over a billion dollars for abusive pricing. The company recently settled with the department of justice to make some troubling accusations about conflict of interest go away. And other healthcare companies are making moves to do away with their pharmacy benefit managers and insource the process. Finally, there are upstarts who provide the service ESRX offers on a fee only basis that looks to undercut the traditional industry model. I expect the stock to fall.
I sold short 100 shares at 75.68 this morning. Options premiums are also fat so I taking a new approach and writing a covered put on the position as well to earn premium. This is the exact opposite of a covered call strategy. I sold ESRX180216P00072500 for 1.40 a share. The play will be in place for 40 days and yields an expected 18.25% annually while enjoying 6.12% downside protection. The is room for an additional 2.50 in short term capital gains if the price falls in the optioned period.
Devour your prey raptors!