COVID-19 vaccine maker Novavax (NVAX 0.43%) has been a volatile stock to own over the past year. Although its shares are up over 60% during the past 12 months (beating the S&P 500 and its 36% gains), it is also trading at less than half of its 52-week high of $331.68 that it hit earlier this year.

There's a lot riding on the success of its COVID-19 vaccine candidate. If it flops and the company doesn't obtain Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA) in the coming months, shares of the healthcare company could nosedive even further. 

Two scientists working in a lab.

Image source: Getty Images.

Here's why investors should be worried

Last week, Politico published an article that suggested manufacturing issues could delay the production of Novavax's COVID-19 vaccine -- again. It also said the shot may fall short of what regulatory agencies like the FDA look for in terms of quality due to issues with consistency, which would be a much bigger problem than just delays in production. Citing unnamed sources, the news site claimed that "the company's issues are more concerning than previously understood."

There have already been warning signs for investors, as the company has pushed off filing for EUA multiple times. In May, it said it wouldn't file for approval until at least July. Then in August, CEO Stanley Erck pushed back the date even further to "around October or some time around then." The concern then was that the company needed to work on "quality problems."

These delays are unfortunately nothing new for Novavax, and it's unsettling for investors to hear that there continue to be issues, regardless of the reason. Although Novavax responded to the Politico report and said that it will file for an EUA in the U.S. before the end of the year (and earlier in other countries), it's still more of the same from the company at this point.

Novavax needs to get its vaccine approved, otherwise its stock could quickly crash. The company's revenue comes primarily from grants and government contracts (related to its COVID-19 vaccine candidate). The risk for investors is that if bad news comes out, the drop can be fierce and sudden -- just like when the Politico report came out last week and the stock plummeted more than 24% at its low point during the day, before finishing at a more modest decline of 15% by the close. If not for the company's press release trying to calm investors, the sell-off could have been even more significant.

What should you do if you own Novavax stock?

If you're a Novavax investor, your strategy will depend ultimately on your willingness to take on risk. If you are conservative and have earned only a modest return on the stock, then perhaps cashing out might be the best move to make right now. But if you don't want to sell, then there is a way you can at least hedge against a possible decline, and that's by using options.

By purchasing put options, investors can lock in the price that they sell a stock for in the future. It comes at a cost and is like an insurance policy. How much it costs will depend on two factors -- price and time. You will be paying more for a put option the higher the strike price is. You're also paying a premium for the time; options that can be exercised a year from now will be more expensive than ones that are only good until next month. And even if you're not a current investor in Novavax, buying call options can allow you to buy shares of the company at a specified price in the event that the stock takes off on news of an EUA.

If you're unfamiliar with options, it could be worth your time to learn about them. For a volatile and risky stock like Novavax, they can help give you some security and minimize the stress and headache that might otherwise come with holding the investment.