Johnson & Johnson Kicks Off 2018 With Bearish Analyst Attention

Options traders have been flocking to puts

Managing Editor
Jan 2, 2018 at 9:42 AM
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Pharmaceutical company Johnson & Johnson (NYSE:JNJ) has kicked off the new year in lackluster fashion. The Dow stock was downgraded this morning to "neutral" from "overweight" at J.P. Morgan Securities. The brokerage firm noted that it is still fundamentally bullish on Johnson & Johnson -- evidenced by the fact it kept its price target at $150 -- but said there are more compelling large-cap plays across the sector.

JNJ stock is slightly lower this morning, down 0.6% to trade at $139.06. The equity tacked on 22% in 2017, touching a record high of $144.35 on Oct. 23, and its 50-day moving average has provided support since just before this milestone was reached. 

However, options traders continue to display a bearish bias. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals a 10-day put/call volume ratio of 1.35, topping 75% of readings from the past year, meaning put buying has been more popular than normal in the past two weeks. Should JNJ continue to climb, it could lead to an unwinding of these bearish bets.

For those interested in buying short-term options contracts, now could be the time to strike. That's because JNJ's Schaeffer's Volatility Index (SVI) currently stands at 11%, putting it in just the 8th annual percentile. In other words, volatility expectations appear muted at the moment.

Furthermore, the Dow stock has tended to reward premium buyers over the past year, based on its Schaeffer's Volatility Scorecard (SVS) of 88. This means it has regularly made bigger-than-expected moves on the charts on the past year, compared to what options traders have priced in.


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