Options Trading Journal

My GSK Options Strategy and Trades in 2022

Reflecting on my GSK options trades. What I did right. What I did wrong. What I am going to do next.

Reflecting on my GSK options trades. What I did right. What I did wrong. What I am going to do next.

GSK is the symbol for GlaxoSmithKline. It is one of the largest firms in the pharmaceutical industry. I was impressed by the scale of GSK’s operations.

Evaluating GSK

At the beginning of 2022, I attended a course called Options Millionaire Intensive (affiliate link). OMI is a 3-day live / virtual bootcamp. I learnt some interesting investing concepts and strategies. One of them is a checklist for evaluating whether a company is good.

  1. Operating cashflow (OCF) of a good company should be consistently positive. A bonus if it is growing.
  2. Net profit margin should be positive. 10% and more to be considered good.
  3. Interest coverage ratio should be positive. The larger the number the better. Nil is also good. It means the company has no loans.
  4. The current year Price/Earning ratio (PE) should be lower than the 5-yr PE
  5. The current year Earning Per Share (EPS) should be higher than the 5-yr EPS
  6. The Value line should be higher than the current share price. This means that the company shares could be trading at a discount.

Applying the OMI Checklist to GSK

  1. GSK’s operating cashflow is consistently positive and the current year is higher than the average. A higher cashflow is always a good thing. 5-year average is 7.68 billion Trailing Twelve Months is 8.04 billion
  2. Although the current year’s net margin profit % is lower than the 5-year average, both of them are higher than 10% which is a good sign. 5-year average is 20.75% Trailing Twelve Months is 12.94%
  3. GSK has sufficient cash to service their loan interest. That’s good. TTM ratio =7.98
  4. The 2021 price over earning ratio is lower than the 5-year average. This means investors’ demand for GSK shares is lower and the share price has not been pushed up too high. 5-year PE – 29.15 2021 PE – 19.19
  5. The current EPS is slightly higher than the 5-year average. It is good that the company is earning more per share. 5-year average – $1.44 Trailing Twelve Months – $1.70
  6. The value line is 29.15 x 1.70 = $49.55. The current GSK share price is $43

GSK has good operating cashflow, a healthy profit margin, and sufficient funds to support the interest on their loans for 7 years. Its value line is also above the current market price.

Although the price trend may be turning bearish, I think GSK stock price would be higher than the current price of $43.40 in 2 years’ time.

I can outright purchase 100 shares or I can try to buy a LEAP call in-the-money.

GSK Options: Poor Man’s Covered Calls

  1. Buy a call option with a strike price of $40 expiring on 19 Jan 2024. (Check implied volatility percentile to make sure it is less than 50.) Close it when the options price doubles.
  2. Sell call options with strike prices above $45 expiring less than 30 days to collect some premiums.

14 Feb 2022 – bought 1 call option with strike price $40 at a cost of $580 expiring 19 Jan 2024. Closed on 24 March 2022 at $630. Profit: $50

17 Feb 2022 – sold 1 call option with strike price $46 expiring on 25 Mar 2022 for a premium of $30.00. Closed on 18 Mar 2022 for $5. Profit: $25

My plan was to sell another short call option at a good strike price. But I am unable to find any 30-day call option with premium above $30.

There are not enough volume and interest. So I decided to close the Jan 2024 call for a small profit.

Lesson learnt: final check on volume and interest of 30-day call options before entering 2-year call options.

The data I used for evaluation are sourced from and Moomoo (affiliate link). I have trading accounts with them and it includes access to relevant company and market information.

Source of feature image: GlaxoSmithKline building by Ian Wilson – Flickr, CC BY 2.0

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