Johnson & Johnson (JNJ) Options Bulls Active Despite Janssen Drama

Johnson & Johnson (NYSE:JNJ) hit an all-time high today, but the Dow component is also dealing with some negative news

May 10, 2016 at 11:34 AM
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With the U.S. stock market storming higher, Dow component Johnson & Johnson (NYSE:JNJ) is one of several large-cap stocks enjoying all-time highs today. While JNJ stock is up 1% at $114.89 -- earlier hitting a record peak of $115 -- there may be cause for concern off the charts. Specifically, not unlike the hot water Valeant Pharmaceuticals Intl Inc (NYSE:VRX) found itself in with Philidor last fall, JNJ's Janssen Pharmaceuticals unit received a civil investigative demand from the U.S. Attorney's Office in regard to its relationships with pharmacy benefits managers. Even so, JNJ options traders are staying active -- especially on the call side of the aisle. 

More specifically, JNJ call options are trading at twice the average intraday pace, putting volume in the 97th percentile of its annual range. The most popular JNJ strike is the May 114 call, though it's possible traders are closing the now-in-the-money positions. Elsewhere, the weekly 5/13 115-strike call is also seeing notable attention. It seems safe to assume traders are buying to open positions here, betting on JNJ to notch another all-time peak before the contracts expire at the end of the week. 

Call buying is nothing new in JNJ's options pits. The stock sports a 50-day call/put volume ratio of 1.17 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which tops two-thirds of readings from the past year. Plus, JNJ's Schaeffer's put/call open interest ratio (SOIR) of 0.81 sits in the low 20th annual percentile, indicating an unusual call-skew among short-term speculators. 

Outside of the options pits, though, many traders remain skeptical of JNJ. In fact, short interest increased by almost 15% in the latest reporting period. At average daily volumes, it would take these bears more than three days to cover their positions, meaning there's some sideline cash available that could lift the shares in the near term. 

Bullish notes from the brokerage crowd could also help the stock. Specifically, eight of the 17 analysts that cover JNJ say it's a "hold" or "strong sell," while the stock is quickly approaching its consensus 12-month price target of $117.17. 

Aside from the contrarian value that the sentiment on Johnson & Johnson (NYSE:JNJ) provides, it also bears mentioning that now is an opportune time to purchase premium on the Dow stock. JNJ's Schaeffer's Volatility Index (SVI) of 14% sits in just the 16th annual percentile, meaning the stock's near-term options can be had at a relative bargain, from a volatility perspective. 

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