Covered Calls on Express Scripts (ESRX)
Express Scripts (ESRX) is a $59 billion pharmacy benefit management server. It handles all kinds of pharmaceutical distribution, along with all the infrastructure and support services that go along with it. In short — if you have a prescription drug plan, there’s a good chance it’s through Express Scripts.
ESRX has been on a buying binge for many years and is a market leader. It’s a great business to own, anyway, because it has so little in terms of capital expenditures, and generates more than 10 times capex in operating cash flow annually. It’s also amazingly cheap considering how expensive the market is, trading at 15 times earnings on a 15x growth rate.
You can buy ESRX here at $76.08, then sell the April 76 Call for $1.48 for a total of $1.40 ($1.48 – $.08 lost if called away) — or about 2% for a mere 23-day holding period. That’s a very attractive return of 32% annualized.
Sell three of these, and you get $444.