This Blue Chip Could Extend Its Impressive Rally

Johnson & Johnson options are relatively cheap right now, too

Mar 26, 2019 at 10:35 AM
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After a tumultuous ending to 2018, blue chip Johnson & Johnson (NYSE:JNJ) appears to be on solid technical footing once again. The shares are currently trading just above the 40- and 160-day moving averages, along with a 61.8% Fibonacci retracement of their huge December bear gap. On top of this rosy technical picture, there’s a number of sentiment indicators suggesting bulls should jump on JNJ for an extended run higher.

WKALT JNJ Chart March 22 New


First we can look in the options pits, where there’s been a sharp rise in the security’s Schaeffer’s put/call open interest ratio (SOIR), with this reading standing at a put-heavy 1.26. Such increases in the indicator have predated rallies in the past. Not only that, but this SOIR ranks in the 93rd annual percentile, showing such a put-skew is unusual among options traders, and a return to more “normal” levels could result in tailwinds for the stock.

Elsewhere, analysts certainly aren’t positioned for more upside from JNJ. In fact, the majority of covering brokerage firms have “hold” ratings at the moment, indicating the stock could benefit from a lowered bar to start the year, and upgrades could come through.

Plus, options premiums look low right now, according to Johnson & Johnson’s Schaeffer’s Volatility Index (SVI) of 15%, a number that lands in the low 16th annual percentile. Not only that, but the Schaeffer’s Volatility Scorecard (SVS) of 74 shows the equity has regularly made bigger moves than the options market was expecting in the past year. Our recommended call has a leverage ratio of 12.5, and will double in value on an 8% gain in the shares.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this JNJ commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.


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