One investor expects Johnson & Johnson to rebound after the
stock has fallen with the rest of the market in recent weeks.
optionMONSTER's Heat Seeker monitoring program detected the
purchase of 5,000 July 82.50 calls for $2.46 and the sale of 10,000
July 87.50 calls for $0.48. It resulted in a cost of $1.50.
The trader now stands to collect $5 if JNJ closes at $87.50 on
expiration. Gains will erode above that level because of the larger
short position at the higher strike, turning to losses over $92.50.
Known as a
because twice as many calls were sold as the number bought, the
strategy is employed to amplify a move of limited size. (See our
section for more on how to harness the
JNJ rose 0.36 percent to $84.46 yesterday. The health-care products
giant rallied 25 percent between the start of the year and late
May, when it established a new all-time high of $89.99, but has
been skidding lower since.
Volume was below open interest in the July 87.50 calls, so it's
also possible that an existing position was closed at the lower
strike and rolled down. The move would let the investor raise their
delta to 295,000 from 160,000, thereby increasing correlation to a
Calls outnumbered puts in the name by a bullish 3-to-1 ratio,
according to the Heat Seeker.
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