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Monday, December 21, 2020
Derivatives Idea: COVID 19 Vaccine Play - 13 Month FedEx Accumulator
*This performance is only observed with historical backtests and not traded by the company.
Risks & Assumptions
With major US Pharma companies on the verge of delivering 1st dosage of vaccine, all attention now focuses towards the next step of the vaccine delivery – storage & distribution i.e. the logistical part. Pfizer recently administered its 1st vaccine dosage in UK & US with more countries gearing up for the final vaccine launch. Other major developed & emerging market countries are likely to order sizeable amount of vaccine dosages in order to meet burgeoning demand for their population’s vaccine injection requirement.
With this move, stocks in distribution, storage & logistics industry like FedEx ($ FDX) are likely to see increased investor demand. FedEx has already confirmed it will ship vaccines from manufacturing and distributors to administrative sites in US. The company will leverage and make use of its massive speed & freight network in order to achieve the same. As per initial estimates, FedEx is likely to deliver around 40 + million vaccine dosages to more than 20 million patients by this year end.
The structure is designed to have a strong bullish view on the underlying stock FedEx. In a worst case scenario at the time of expiry, if the FedEx share price drops below the respective put sell strikes, the investor will be required to take delivery at the corresponding strikes.
The structure is constructed by holding a long position in the underlying stock as well as simultaneously selling 3 put options at lower strikes. The structure exposure size is based on 1 lot of underlying share for all legs (1 Lot = 100 units).
Advantages over Normal Stock Buy & Hold Position
Accumulator Comparison over Normal Stock Buy & Hold Position
As seen from the above image, in case of FedEx share price drop below the CMP, the structure will potentially aim to give average coupons of 15.32 % till the lower barrier strike price of $ 200. In a scenario where prices rally above the CMP, the structure potentially looks to give not only current share price gains but also the coupon gains. In a worst case scenario when prices drop below the put strike prices at the time of expiry, the investor is require to take delivery of the share at the corresponding strike prices.
Structure Payoff & Statistics
13 Month FedEx Accumulator Payoff
13 Month FedEx Accumulator Statistics
Risks & Assumptions
Data Source: Bloomberg
Arun Leslie John
Chief Market Analyst
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