Johnson & Johnson, UnitedHealth Group Inc Top Earnings Expectations

Dow stocks Johnson & Johnson (JNJ) and UnitedHealth Group Inc (UNH) are fresh off better-than-expected earnings

by Alex Eppstein

Published on Jul 19, 2016 at 10:09 AM

Healthcare stocks and Dow components Johnson & Johnson (NYSE:JNJ) and UnitedHealth Group Inc (NYSE:UNH) put on a proverbial clinic in the earnings confessional. JNJ handily topped earnings expectations and lifted its full-year guidance, while UNH also reported a better-than-forecast quarterly profit. Below, we'll take a closer look at how each stock is moving on earnings, and how options traders may be reacting.

JNJ has added 1.7% to trade at $125.21, and earlier hit a record high of $125.75. Based on what we've seen at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have been bracing for a more negative earnings reaction, buying to open 1.27 puts for every call in the past 10 days. Given the stock's long-term gains, a portion of these puts may have been purchased by shareholders seeking a downside hedge.

At the same time, some call traders may be feeling the heat today, as well. The JNJ strike that has seen the biggest change in open interest over the past two weeks is the October 125 call, and data from across the major exchanges shows significant sell-to-open activity. In other words, these speculators were counting on the $125 level to act as an intermediate-term ceiling for the shares.

Shifting gears, UNH is 0.5% higher at $141.45, and the healthcare stock is now 20.2% higher on a year-to-date basis, and a chip-shot from its all-time peak of $142.96, touched earlier this month.

As with Johnson & Johnson traders, UNH speculators have been placing downside bets at an accelerated rate. The insurance stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.75 clocks in above 72% of all readings taken in the last year. The out-of-the-money September 135 put has seen the largest increase in open interest during that time span -- adding roughly 2,600 positions -- and based on ISE data, some were likely bought to open.

Meanwhile, analysts are decidedly upbeat toward UnitedHealth Group Inc. Seven of 19 brokerage firms have handed out a "buy" or better opinion, while the stock's consensus 12-month price target of $152.24 resides in all-time-high territory.

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