Johnson & Johnson (JNJ) and the $1 Million Bearish Bet

Johnson & Johnson's January 2015 102-strike put is in focus today

by Karee Venema

Published on Dec 23, 2014 at 1:35 PM
Updated on Apr 20, 2015 at 5:32 PM

Johnson & Johnson (NYSE:JNJ) is lower today, as uncertainty surrounding Express Scripts Holding Company's (NASDAQ:ESRX) exclusive pact with AbbVie Inc (NYSE:ABBV) continues to create headwinds throughout the pharmaceutical sector. In the equity's options pits, put volume has popped to seven times what's typically seen at this point in the day, with one speculator betting big on an extended decline for JNJ over the next several weeks.

Specifically, the January 2015 102-strike put is JNJ's most active option by a mile. The majority of the activity here occurred when a massive block of 16,994 contracts was bought to open for roughly $1.1 million (number of contracts * $0.65 premium paid * 100 shares per contract).

This is the most the speculator stands to lose, should JNJ finish north of $102 at the close on Friday, Jan. 16, when front-month options expire. Profit, meanwhile, will accrue on a move south of the at-expiration breakeven price of $101.35 (strike less premium paid).

Unfortunately, today's option bear has two important technical levels to contend with. Specifically, the equity's 200-day moving average showed its might as support during last week's quick retreat, while JNJ's 160-day moving average is helping to contain today's pullback. Longer term, Johnson & Johnson (NYSE:JNJ) has surged roughly 62% since mid-June 2012 to trade at $104.20, thanks to a lift from these two trendlines.

Daily Chart of JNJ Since June 2012 With 160-Day and 200-Day Moving Averages

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