JNJ Analysis

Johnson & Johnson (JNJ)

Update 10/18/2017: JNJ’s earnings came in at $1.90 per share, exceeding the consensus forecast of $1.82. The price rose by $5 in the post-earns session, breaking out of the $3 profit range and doubling the expected move and exceeding the maximum post-earns move of the past year.

Zacks suggested there would be an upside earnings surprise, None of the telltales I use pointed toward the magnitude of the move.

Shares rose by 3.7% over my two-day holding period, or a +672% annual rate. The options position produced a 38.6% loss for a -7,037% annual rate.

JNJ publishes earnings on Tuesday before the opening bell.

I shall use options that trade for the last time 11 days hence, on Oct. 27.

Implied volatility stands at 16%, which is !0 times the VIX, a measure of the volatility of the S&P 500 index.

JNJ’s IV stands in the 53rd percentile of its annual range and the 43rd percentile of its most recent broad movement.

The price used for analysis was $136.15.

Premium: $2.90 Expire OTM
JNJ-iron fly Strike Odds Delta
Calls 142.00 92.8% 8
Break-even 138.90
Short 136.00 49.9% 51
Short 136.00 50.4% 49
Break-even 132.90
Long 130.00 90.7% 9

The premium is 48.3% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

The zone of profit in the proposed trade covers a $3 move either way. The biggest immediate move after each of the past four earnings announcements was $3.90, and the average was $2.42. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.22.

The expected move covering 85% of occurrences is $2.48, within the profit zone.

The bid/ask spread is 5.1%.

Decision for My Account

I have entered a position on JNJ as described above. The stock at the time of entry was priced at $136.16.

By Tim Bovee, Portland, Oregon, October 16, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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