We’re Earning Fat Premiums Trading Obesity Drugs

As a whole, pharmaceutical stocks significantly underperformed the broader market last year. VanEck Pharmaceutical ETF (PPH) was up 7% in 2023, while the S&P 500 advanced more than 24%.

This was due in part to macroeconomic headwinds as the Federal Reserve continued its rate hike campaign. Also hampering some pharma stocks’ performance was generic competition, with several blockbuster drugs facing patent expirations, and pricing pressure from Medicare drug-price negotiations.

But there were some standouts in the sector that not only outperformed but also provided ample volatility for option sellers to generate income.

Among these were the makers of diabetes and weight-loss drugs like Ozempic, Wegovy and Mounjaro that have seen their product fly off the shelves. While they may have started out as Hollywood’s worst-kept secret — leading to speculation about which high-profile and noticeably thinner celebrities were talking the drugs — more and more everyday people are turning to them to shed unwanted pounds.

The two companies that have been the primary beneficiaries of the booming market for obesity drugs are Novo Nordisk (NVO), which makes Ozempic and Wegovy, and Eli Lilly (LLY), which makes Mounjaro.

Both companies reported better-than-expected sales of the drugs for the most recent quarter, noting that they are struggling to keep up with skyrocketing demand.

This trend is likely to continue gaining steam in the new year, with Danish drugmaker Novo Nordisk predicting double-digit sales growth for Wegovy and Ozempic. Meanwhile, Indianapolis-based Eli Lilly is ramping up supply capacity after seeing sales of Mounjaro exceed $1 billion in the third quarter.

Both NVO and LLY soared in 2023, rising 57% and 61%, respectively, as the companies kept generating headlines and sales. And analysts are expecting big things from them in 2024.

Last year, we used bullish investor sentiment and the buzz surrounding these popular weight-loss drugs to our advantage by selling options on Novo Nordisk and Eli Lilly in the Options Income Weekly and Income Masters programs.

Between the two services, we’ve booked three winning trades on NVO since early November using a cash-secured put strategy, with one open trade approaching its profit target. We earned an average rate of return of 0.5% per closed trade. That’s a respectable return for selling puts 6% to 7% out of the money.

LLY has been traded exclusively in the Income Masters program due to the stock’s high price, which is currently well north of $500 per share. Since mid-August, we’ve closed eight successful trades on the stock utilizing a bull put spread strategy.

A bull put spread, also known as a put credit spread, involves selling a put option and purchasing a put option at a lower strike price with the same expiration date to generate a net credit. The strategy allows option sellers to generate income with a fraction of the capital outlay while earning high rates of return.

To illustrate, here’s a look at all the trades we made on LLY in 2023:

In total, Income Masters members earned $1,835 from LLY in just over six months, with an average return of 7.8% per trade and an average holding time of just over 10 days.

This rise of these weight-loss drugs will be an interesting trend to watch play out in the new year and one we plan to continue capitalizing on across our services.

In fact, we just put on a new spread trade on LLY in our first Income Masters live trading session of the new year. If the spread hits our target exit price, we’ll book an 8.4% return.

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