COVID Vaccine Options Trade with Potential 80% Upside

covid vaccine options

Drug manufacturer Astrazeneca (AZN) is one of many companies working on a COVID-19 vaccine. The company announced on October 12 that the U.S. government has provided it with $486 million in funding to help with the production of its antibody vaccine.

Astrazeneca’s AZD7442 is set to start Phase 3 trials in the next few weeks.

Originally it appeared that investors were investing in pharmaceutical companies thinking that a vaccine would be a big windfall for one company.

Now it looks as though there will be a number of vaccines available within the next year. This means the demand will likely be spread across a number of different products from different companies.

There are some smaller drug companies that saw their stock prices jump sharply when Phase 1 and Phase 2 results were released. But the bigger companies haven’t really seen big boosts when they’ve announced results.

For Astrazeneca, the stock has pretty much stayed on course with a rally that has been ongoing for the last three years.

Looking at the weekly chart for Astrazeneca we see a trend channel going back to the second quarter of 2019. The stock dipped below the lower rail in February and March, and it moved above the upper rail in July.

Other than those two instances, the stock has closed within the channel every week.

The stock is down near the lower rail of the channel currently and the weekly stochastic indicators are close to oversold territory. The indicators are the lowest they have been since early 2019.

What this suggests to me is that the stock is primed for its next leg higher.

Fundamentals better than average

One of the biggest benefits to developing one of the first vaccines for COVID-19 is the opportunity to improve revenue and earnings figures.

For Astrazeneca, the company already has some pretty solid fundamental indicators. The company saw earnings grow by 32% in its most recent quarterly report and they are expected to grow by 35.6% in the next quarter. Analysts expect earnings to grow by 29.6% in 2021.

Revenue was flat in the most recent quarter, but it is expected to increase by 3.6% in the next report. Analysts expect revenue to increase by 7.7% for 2020 and 14.4% in 2021.

In addition to the revenue and earnings growth, the company boasts a return on equity of 31.7% and a profit margin of 20.8%.

Given the upward trend on the chart and the strong fundamentals, I look for Astrazeneca to continue higher over the coming months.

To take advantage of the expected rally, I suggest looking at the January 2021 call options. Specifically I like the 50-strike calls from that option series.

With the stock trading at $55.30 currently, the January 50-strike calls are trading at $7.20. This means that 73% of the premium is intrinsic value and 27% is time premium.

I expect a move similar to what we saw from the end of May ’19 though late July that year, and again from September through December of 2019. In both of those cases the stock rallied right around 20%.

If the stock rallies by 20% from the recent low it would be trading around $63.00. This would make the January 50-strike calls worth at least $13.00 on intrinsic value alone. At the current price, a move to $13.00 would be a gain of just over 80%.

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