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Johnson & Johnson Targeted By Short-Term Option Traders

JNJ's weekly options are in focus today

by 1/22/2013 11:45 AM
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Today's option traders are betting on a modest move to either the downside or the upside for Johnson & Johnson (NYSE:JNJ - 72.49) through week's end. The two most popular positions in today's session are JNJ's 1/25 72.50-strike put and 1/25 72.50-strike call. The majority of the roughly 3,200 contracts traded at the former have gone off at the ask price, and data from the International Securities Exchange (ISE) shows that a portion of these positions have been bought to open. Meanwhile, 76% of the 2,200 contracts traded at the latter strike have crossed at the ask price, and volume is outstripping open interest, pointing to the initiation of new positions.

The in-the-money weekly puts were purchased for a volume-weighted average price (VWAP) of $0.24, making breakeven for the bearish bets at $72.26 (strike price minus VWAP), or 0.3% below current levels. Conversely, breakeven for the near-the-money weekly calls is $73.07 (strike price plus VWAP of $0.57), meaning JNJ must rise 0.8% by the close on Friday -- at which point the short-term options will expire -- in order for the bullish positions to be profitable. The most either group of speculators have to lose is the initial premium paid.

Technically, JNJ has been in a steady uptrend over the past six months, with the shares up more than 17% since tagging an annual low of $61.71 on June 1. In fact, the equity hit a new record peak of $73.23 last Friday. JNJ has pulled back from this notable milestone in today's session, though, after the blue-chip component issued a fiscal 2013 forecast that fell short of analysts' estimates. Specifically, JNJ is calling for a full-year adjusted profit of $5.35-to-$5.45, below Wall Street's projections of $5.49 per share.

At last check, the stock had shed around 1% to hover near $72.49. However, with JNJ's Relative Strength Index (RSI) of 74 sitting solidly in overbought territory, a near-term consolidation may have been in the cards.


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