Investing with options: Adyen - post Investor Day

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions. 

Bullish outlook

Long call on Adyen NV (ADYEN:xams)

• Underlying stock: ADYEN:xams, last traded at 958.80 EUR
• Options details:
  
  • Buy to Open 1x 800 Call, 20-Dec-2024, Bid/Ask: -, Delta: 0.7538
• Trade setup:
  
  • Type: Limit, quantity: 1, price (debit): 2788.00 EUR, duration: Day Order
• Financials:
  
  • Premium (debit): 2788.00 EUR
  • Margin impact: 0.00 EUR
  • Max risk: -2788.00 EUR
  • Max profit: Infinity
  • Breakeven: 1078.80 EUR
    
    
• The trade involves purchasing a long call option with a strike price of 800 EUR on Adyen NV. With no immediate margin impact, the trade carries a maximum risk equal to the premium paid and offers unlimited profit potential above the breakeven point of 1078.80 EUR, signifying a bullish market expectation. The significant delta indicates a strong belief in the underlying stock's upward movement before the expiry in December 2024.
   

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Neutral / range bound outlook

Short iron condor on Adyen NV (ADYEN:xams)

• Underlying stock: ADYEN:xams, last traded at 958.80 EUR
• Options details:
  • Sell to Open 1x 1400 Call, 20-Dec-2024, Bid/Ask: -, Delta: -0.2815
  • Sell to Open 1x 600 Put, 20-Dec-2024, Bid/Ask: 32.90, Delta: -0.1152
• Trade setup:
  
  • Type: Limit, quantity: 1, price (credit): 95.40 EUR, duration: Day Order
• Financials:
  
  • Premium (credit): 954.00 EUR
  • Margin impact: 667.69 EUR
  • Max risk: Infinity
  • Max profit: 954.00 EUR
  • Breakevens: 504.60 EUR and 1495.40 EUR
    
    
• This strategy involves selling a 1400 strike call and a 600 strike put, both expiring in December 2024. The trader receives a net credit of 954.00 EUR with breakeven points at 504.60 EUR and 1495.40 EUR. This position indicates a neutral market stance with defined profit and potentially unlimited risk if the stock moves beyond the breakeven points. The significant deltas reflect the strategy's responsiveness to stock price movements in either direction.
• Possible outcome scenarios:
  • Profitable range scenario with yield: If Adyen’s stock price remains between 600 and 1400 EUR at expiration, the trader retains the 954 EUR premium. Given the margin impact of 667.69 EUR, the yield over the trade's lifetime (until December 2024) would be approximately 143% [(954 / 667.69) * 100], assuming the margin requirement is the capital put at risk.
  • Above 1400 EUR scenario without existing stock: Should the stock rise above 1400 EUR, the call sold is in-the-money and the trader may face losses, which increase the further the stock rises.
  • Above 1400 EUR scenario with existing stock: If the stock price exceeds 1400 EUR and the trader holds Adyen shares, they may be obligated to sell at this price due to the exercised call. This scenario would not generate a loss but cap the profit on the owned shares. Effectively, this strategy serves as a yield enhancement on an existing stock position, by collecting premiums while setting a potential future sale price.
  • Below 600 EUR scenario: If the stock falls below 600 EUR, the put sold is in-the-money and the trader may have to buy the stock at 600 EUR, incurring losses, especially if the stock continues to drop.
  • In all these scenarios, it's important to remember that the contract size of 10 shares will affect the total profitability and risk, with lower capital requirements and potentially lower profits or losses in absolute terms compared to the standard 100-share contracts. The trader would need to adjust their strategies accordingly, keeping in mind Adyen's high share price and the specific terms of their options contracts.

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Bearish outlook

Short call vertical spread on Adyen NV (ADYEN:xams)

• Underlying stock: ADYEN:xams, last traded at 958.80 EUR
• Options details:
  • Buy to Open 1x 1200 Call, 20-Dec-2024, Bid/Ask: -, Delta: 0.4165
  • Sell to Open 1x 1000 Call, 20-Dec-2024, Bid/Ask: -, Delta: -0.5835
• Trade setup:
  
  • Type: Limit, quantity: 1, price (credit): 70.65 EUR, duration: Day Order
• Financials:
  
  • Premium (credit): 706.50 EUR
  • Margin impact: 218.12 EUR
  • Max risk: -1,293.50 EUR
  • Max profit: 706.50 EUR
  • Breakeven: 1,070.65 EUR
    
    
• The trade exhibits a short call vertical spread where a 1200 strike call is bought and a 1000 strike call is sold, both for December 2024. The trader enters the position for a credit of 706.50 EUR and assumes a maximum risk of -1,293.50 EUR, with a breakeven stock price of 1,070.65 EUR. This strategy suggests a neutral to bearish outlook, limiting upside exposure while providing a premium income.

Conclusion: Market Strategies Reflect Adyen's Growth Prospects

Adyen's revised growth strategy and the market's subsequent rally have given rise to diverse trading strategies that mirror the varied investor sentiment and expectations. From bullish over neutral to bearish, these strategies demonstrate the adaptability of market participants to the evolving financial landscape shaped by Adyen's ambitions. As the company steers through the intricate dynamics of global payments, maintaining solid growth, traders and investors align their portfolios to leverage Adyen's potential for sustained growth and scalability. The options strategies discussed offer insights into the tactical maneuvers employed in the marketplace, highlighting a keen balance between risk management and the pursuit of opportunities presented by Adyen's trajectory.

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