Call Buyers Ride Johnson & Johnson Stock Rally

There's room for more upgrades, too

by Josh Selway

Published on Jan 9, 2018 at 2:37 PM

One of this market's biggest drivers in recent years has been the healthcare sector, evidenced by the strength seen from the Health Care Select Sector SPDR Fund (XLV), with each notable pullback turning into a prime buying opportunity. In fact, the exchange-traded fund (ETF) has experienced only three negative quarters over the past five years, and just touched an all-time high of $86.01. Johnson & Johnson (NYSE:JNJ) can be credited for much of this success, with the ETF's largest holding carrying the Dow to a record high earlier.

JNJ just notched its highest price ever at $145.68, and was last seen up 2% at $144.71. This comes after a J.P. Morgan Securities analyst said the company can "print any number it wants in 2018," saying he expects a stronger-than-expected forecast. The move brings the equity's 12-month advance to 24.4%, and with earnings coming up on the morning of Tuesday, Jan. 23, some shareholders may be reminiscing of the company's impressive quarterly report from October.

Taking a quick peak in the options pits, the blue chip has been a long-time favorite of call buyers. JNJ's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.57, showing a healthy demand for long calls over puts.

Call volume is exploding today, too, as options traders react to the stock's rally. It looks like there's buying at a number of near-term calls, and the most popular has been the weekly 1/12 146-strike call. Those opening long positions will profit on a move above $146 from Johnson & Johnson by week's end, when the contracts expire.

Lastly, be on the lookout for even more bull notes for the pharmaceutical giant. Forty-two percent of the analysts in coverage still have "hold" or "strong sell" ratings, and the stock is quickly approaching its consensus 12-month price target of $147.77.

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