Summary of Investment Strategy for Novo Nordisk

In the article titled "Getting paid to buy Novo Nordisk: earn income while waiting for a better price," investment strategist Koen Hoorelbeke discusses a strategic approach for long-term investors interested in Novo Nordisk (ticker: NVO). After a significant rise in share price throughout 2023 and early 2024, the stock has recently experienced a pullback, trading around USD 69, down from highs near USD 135. This decline is attributed to supply bottlenecks, executive changes, and a more cautious outlook, creating volatility in the stock price.

Understanding the Cash-Secured Put Strategy

Hoorelbeke introduces the concept of a cash-secured put strategy as a way for investors to potentially buy shares at a lower price while earning income in the meantime. This strategy involves selling a put option, which gives another investor the right to sell shares to you at a predetermined price (the strike price) by a certain expiration date. In return, the seller of the put option receives a premium upfront.

Example of the Strategy

For instance, if an investor is willing to buy Novo Nordisk shares at USD 64, they could sell a put option with a USD 64 strike price, currently trading at around USD 1.70 per share. By selling one contract (representing 100 shares), the investor would receive USD 170 in premium and would need to set aside USD 6,400 in cash to cover the potential purchase of the shares if assigned. If the stock price remains above USD 64 until the option's expiration, the put expires worthless, allowing the investor to keep the premium as income. This results in a 2.7% return over 32 days, which annualizes to approximately 29% if repeated monthly.

Potential Outcomes and Risks

There are two main outcomes at expiration:

• Scenario 1: If Novo Nordisk's stock price stays above USD 64, the put option expires worthless, and the investor retains the premium.
• Scenario 2: If the stock price falls below USD 64, the investor is obligated to buy the shares at that price. However, considering the premium received, the effective purchase price would be USD 62.30, providing a discount from the current market price.

Despite its conservative nature, the strategy carries risks, including the possibility of the stock price dropping significantly below the strike price, which could lead to a paper loss on the new position. Additionally, fluctuations in currency exchange rates and market news can impact the stock price.

Conclusion

For long-term investors looking to add Novo Nordisk to their portfolios, the cash-secured put strategy at a USD 64 strike price presents an attractive opportunity to either earn income or acquire shares at a discount. The article emphasizes the importance of having a clear investment plan and understanding the risks involved in such strategies.