Blue Chip Johnson & Johnson Provides Big Gains for Options Traders

Johnson & Johnson was up more than 10% year-to-date

Jul 13, 2017 at 11:53 AM
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Subscribers to Schaeffer's Event service recently notched a 130% gain thanks to Johnson & Johnson (NYSE:JNJ) weekly 7/7 127-strike calls. Below, we'll break down why we were bullish on JNJ and how the options trade unfolded. 

Back in late May when we initiated our bullish position, Johnson & Johnson shares were bouncing from their previous highs from July and August,. Plus, with JNJ stock trading atop its 10% year-to-date level, the 20-day moving average was catching up following a brief period of consolidation after a bullish analyst note. 

Considering this technical backdrop, it seemed too many were bearish on the blue chip. In the options pits, near-term traders were overwhelmingly put-skewed, suggesting an unwinding of these seemingly bearish positions could result in tailwinds. Meanwhile, just half of the covering brokerage firms had "buy" or better ratings on JNJ. So we viewed positive analyst attention as another upside catalyst for the shares -- especially ahead of two noteworthy healthcare conferences. 

It was also an opportune time to speculate on Johnson & Johnson with options. For example, its Schaeffer's Volatility Index (SVI) ranked in just the 9th annual percentile, hinting at muted premium for near-term options. 

JNJ didn't disappoint, extending its uptrend following our recommendation and hitting a record high of $137 on June 22. With the 135 strike holding heavy put and call open interest and thus potentially serving as a short-term ceiling, we suggested traders close half their positions on June 20. Then, on July 7, we finally recommended subscribers close the rest of their positions, allowing them to more than double their money in just over a month's time. 

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