Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Investing with options: Novo Nordisk earnings
Koen Hoorelbeke
Investment and Options Strategist
Summary: 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
With the global community eagerly awaiting Novo Nordisk’s Q3 financial results this Thursday, the company’s impressive progress in the field of obesity care is drawing significant attention. The market has responded with a surge in demand, making Novo Nordisk a leader in this burgeoning field. This article will delve into four options strategies designed to align with various market outlooks on Novo Nordisk's stock, which last traded at $96.40.
See also: Earnings watch Caterpillar Apple Novo Nordisk
See also: Earnings watch Caterpillar Apple Novo Nordisk
Strategies
1. Bullish outlook - buying call options:
Considering Novo Nordisk's pullback in the last few days, a long call option can capitalize on potential upside.
- 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:
Selling in-the-money (ITM) put options can be another method to acquire Novo Nordisk shares at a discount.
- 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:
If you believe Novo Nordisk's stock is set for a decline, a long put option can be suitable.
- 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:
If you already own Novo Nordisk shares, covered calls can generate additional income.
- 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
- Yield:
- 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.
Conclusion
When it comes to investing in options around Novo Nordisk's earnings, each strategy comes with its unique set of rewards and risks. The key is aligning your strategy with your market outlook and risk tolerance.
The comparisons between buying stock and using options reveal interesting facets:
- 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.
Each option strategy can serve a purpose depending on your viewpoint on the stock and market conditions, making options a flexible tool for various investment goals.
Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.
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