Investing with options: Novo Nordisk earnings
Résumé: As Novo Nordisk prepares to release its Q3 earnings report, a focus on its game-changing obesity care treatments has propelled the stock into the limelight. With a forecasted 27% YoY revenue growth and EBITDA of DKK 27bn, the stakes are high. This article explores four curated options strategies to fit bullish, bearish, and neutral stances on Novo Nordisk.
Investing with options - Novo Nordisk earnings
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1. Bullish outlook - buying call options:
- Execution: BuyToOpen 1 21-Jun-2024 87.50 Call @ $16.90 (Delta: 0.7376)
- Premium and risk: Per share: $16.90 (debit)
- Premium cost: $16.90 x 100 = $1,690
- Max risk: $1,690 (if NVO remains below 87.50 at expiry)
- Breakeven point: $87.50 (strike) + $16.90 (premium) = $104.40
- Rationale: Opting for a long call with a distant expiration reduces time decay and captures more upside with a high delta.
- Stock vs options comparison: $1,690 could buy approximately 17 shares of NVO at its current price of $96.40. A $1 increase yields an estimated profit of $17 for the stock but a $73.76 gain for the option (100 x $1 x 0.7376).
2. Bullish outlook - selling ITM put options:
- Execution: SellToOpen 1 03-Nov-2023 100 Put @ $4.50 (Delta: -0.6474)
- Premium and risk: Per share: $4.50 (credit)
- Premium earned: $4.50 x 100 = $450
- Max risk: Considerable if NVO falls sharply.
- Breakeven point: $100 (strike) - $4.50 (premium) = $95.50
- Rationale: A near-term expiration date accelerates time decay, making the trade more profitable if NVO remains above the strike price.
- Stock vs options comparison: Effective price: $95.50 vs current price: $96.40. Discount: $0.90 per share. Percentage Discount: 0.93%.
3. Bearish outlook - buying put options:
- Execution: BuyToOpen 1 21-Jun-2024 105 Put @ $13.80 (Delta: -0.5353)
- Premium and risk: Per share: $13.80 (debit)
- Premium cost: $13.80 x 100 = $1,380
- Max risk: $1,380 (if NVO stays above 105 at expiry)
- Breakeven point: $105 (strike) - $13.80 (premium) = $91.20
- Rationale: This long-put strategy minimizes time decay while providing a leveraged position for significant gains if the stock price falls.
- Stock vs options comparison: A $1 decrease in NVO stock yields an estimated $53.53 profit per option contract (100 x $1 x -0.5353).
4. Neutral/bullish outlook - writing covered calls:
- Execution: SellToOpen 1 10-Nov-2023 105 Call @ $0.55 (Delta: 0.1786)
- Premium and risk: Per share: $0.55 (credit)
- Premium earned: $0.55 x 100 = $55
- Max risk: Capped at the stock's current market price of $96.40 x 100 = $9,640.
- Breakeven point: Varies based on stock cost basis
- 11-Day Yield: ($55 / $9,640) x 100 = 0.57%
- Annualized Yield: (0.57% x 365) / 11 = 19.05%
- Rationale: Writing a covered call provides additional income while capping the upside potential.
- Stock vs options comparison: The covered call secures immediate premium income with a capped upside potential, providing a 19.05% annualized yield if repeated.
- Buying calls: The leverage effect of a call option allows you to control the same amount of stock with less capital. A $1 increase in Novo Nordisk's stock results in an $73.766 gain with a call, compared to a $17 gain by holding 17 shares of the stock for the same amount of capital.
- Selling ITM puts: This strategy could allow you to acquire Novo Nordisk at a discounted rate compared to buying shares directly. The effective purchase price would be the strike minus the premium received, which can be calculated as a percentage discount against the current stock price.
- Buying puts: Options offer a leveraged way to bet against the stock with a defined risk, which can be particularly useful in volatile times.
- Writing covered calls: This strategy provides additional income and an annualized yield of 19.05%, which you can't get by just holding the stock.