Clipping a 12% Coupon on a Big Pharma Name
Clipping coupons
Investors finally saw a rebound in equities during the holiday shortened trading week after five straight weeks of declines for the S&P 500, which rose over 3% heading into the three-day weekend. The Nasdaq advanced more than 4% on the week.
The trading action felt like a bounce from short-term oversold levels more than anything else. Oil took another leg higher late in the week and a resolution seems no closer to the regional war in the Middle East.
Higher energy and commodity costs are going to increasingly ripple throughout the global economy if the Strait of Hormuz remains effectively closed. Diesel fuel prices have climbed to $5.40 a gallon from $3.50 at the start of 2026. This is going to increase transportation and logistical costs throughout the U.S. economy.
Higher inflation ahead is likely to sideline the Fed, with futures now pointing to an over 75% probability of no rate cuts the rest of 2026. There is also an outside chance the next move by the central bank will be a hike if inflation surges.
Against this backdrop, I remain defensive within my own portfolio allocation. I only added one new name to my holdings this past week — and it fits perfectly with my cautious view on equities and the global economy.
Our target and trade idea is giant drugmaker AbbVie (ABBV) . Pharma should be much less impacted by surging energy and commodity prices than most sectors. The company is showing consistent growth, while the stock is reasonably valued and also sports a healthy dividend yield of 3.3%.
AbbVie possesses a well-diversified product portfolio with nearly a dozen drugs doing $1 billion or more in annual sales. This includes blockbusters Skyrizi (risankizumab) and Rinvoq (upadacitinib) and a rapidly growing neuroscience portfolio. AbbVie’s pipeline is also quite extensive with approximately 90 ongoing clinical programs.
The company has done a solid job transitioning and adjusting to the loss of patent protection around Humira a few years ago. This had been the best-selling drug in the world from 2012-2020 but only generated $4.5 billion in sales in 2025. Those sales have been replaced by biosimilars and by AbbVie’s Skyrizi, which was the fifth best-selling drug on the market last year. That said, Skyrizi is facing increasing competition in the plaque psoriasis space.
Current analyst firm estimates have AbbVie’s profits growing at a nearly 10% CAGR over the next several years on slightly lower projected revenue growth. ABBV currently trades at just over 14 times forward earnings. Add in the dividend yield of over 3%, and the stock is a reasonable value in an uncertain market.
Option Strategy
Here is how one can initiate a position in ABBV utilizing a covered call strategy. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the November $200 call strikes, fashion a covered call order with a net debit in the $183.00 to $183.50 a share range (net stock price – option premium). Liquidity is excellent with the options against this equity.
This strategy provides downside protection of roughly 12% over the trade’s duration, which includes three dividend payouts of $1.73 a share. The strategy also provides similar upside return potential including dividends, even if the stock trades down 4% over its option duration.
For investors that want to be slightly more aggressive, utilize the November $205 or $210 call strikes.
Related: Updates on 5 Energy Names After Dramatic Crude Oil Price Change
At the time of publication, Jensen was long ABBV.
