Is Johnson & Johnson stuck in limbo?


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Johnson & Johnson has made a big move, but one investor apparently thinks that it will go back to sleep.

optionMONSTER's tracking systems detected the sale of about 12,500 contracts each in the March 65 puts for $3.09 and the March 67.50 calls for $2.06. There was barely any open interest in either strike before the trade occurred.

The strategy generated a credit of $5.15, which will be the maximum profit if the slow-moving drug maker is between $65 and $67.50 at expiration. Gains will erode outside that range, turning to losses below $59.85 and above $72.65.

Known as a short strangle , yesterday's option trade is an example of a market-neutral strategy that makes money from the passage of time rather than a directional move. (See our Education section)

JNJ slipped 0.12 percent yesterday to close at $66.42. Management raised guidance earlier this month, driving shares higher by 8 percent in a little more than a week. That was an exceptionally large rally for a stock that's spent most of the last year trapped between $61 and $67.

The next scheduled event that could serve as a potential catalyst for the stock is the release of second-quarter earnings before the bell on July 17.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

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