Options Traders Oh-Oh-Overjoyed With This Ozempic Trade

Unpacking an options trade that scored a profit in under three days

Managing Editor
Oct 20, 2023 at 11:27 AM
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Subscribers to Chart of the Week received this commentary on Sunday, October 15.

Sometimes the stars align for a perfect options trade that makes sense on every level. Every little piece fits, and afterwards, you’re left wondering why you even had doubts. Subscribers to our new In-the-Money Countdown (ITMC) service scored a 150% profit in just three trading days off a Novo Nordisk A/S (NYSE:NVO) weekly 10/13, 88-strike call. Why are we picking this trade out of a host of other winners to conduct a postmortem? By studying these ‘perfect trades,’ investors can be better prepared for when the next blatant opportunity is staring them in the face.

We recommended the NVO call on Sunday, when the Danish drugmaker had just closed on Friday at $92.12. The stock had taken a roughly 9% haircut from its Sept. 11 record high of $100.88 but was still trading above its previous record high area from April. This area also coincided with the $300 billion market cap level.

NVO Trade Rec ITMC COTW

Leading up to Friday, the shares had already begun a reversal and had taken out a downtrend line from the all-time highs in September, while also reclaiming their 50-day moving average. Longer term, NVO was up 74% year-over-year and 36% in 2023, easily legging out the S&P 500 Index’s (SPX) respective gains of 13% and 11% in those same time frames.

Despite the healthy gains and support on the charts, short interest was up 174% in the last month. Analysts were as equally as skeptical, with only three in coverage and the stock trading well above the 12-month consensus price target. This left massive initiation or bull note potential in the event of a positive catalyst. The kicker for options traders was that premium was affordably priced, per the equity's Schaeffer's Volatility Index (SVI) of 30% that sat in the 20th percentile of its annual range, meaning options traders are pricing in relatively low volatility expectations.

Late in the night on Tuesday, Oct. 10, Novo Nordisk halted its Ozempic kidney trial ahead of schedule, because the interim analysis already indicated success. The driving force behind the outstanding results was semaglutide, the same active ingredient used in Novo’s tremendously successful weight-loss drug Wegovy. NVO gapped higher by 6.3% on Wednesday -- fueled by a price-target hike from Citi – allowing the subscriber to collect the full target profit in just three trading days.

In hindsight this trade seemed like a no-brainer in a macro sense because the whole world has been captivated by the impact of Ozempic. The shrewd marketing decision to use the 1974 Pilot hit ‘Magic’ in the Ozempic commercial made a dangerously catchy jingle that’s a threat to stay in your head all day. The impact of the drug has been seismic; Walmart is noticing soda sales are plummeting as customers alter their cravings. This isn’t just another successful drug in the pipeline, it’s a gamechanger that’s shifting the cultural zeitgeist. Factor in the pullback offering an intriguing entry point, the technical support then in place, and the baffling pessimism that had built up around the stock, this was a perfect storm of opportunity for contrarian investors.

NVO Postmortem COTW

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