Johnson & Johnson (JNJ)

Update 4/19/2022: I exited my short bull put vertical spread on JNJ, 31 days before expiration, for an $0.84 debit per contract/share, a profit before fees of $34 per contract. Shares were trading at $183.00, up $2.70 from the entry level.

The Implied Volatility Rank at exit was 32.3%, down 10.7 points from the entry level.

I exited because the position reached 28.8% of maximum potential profit, slightly above my normal exit point for earnings plays of 25% of max.

Shares rose by 1.5% over one day for a +547% annual rate. The options position produced a 40.5% return for a +14,774% annual rate.

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I have entered a short bull put spread on JNJ, using options that trade for the last time 32 days hence, on May 20. The premium is a $1.18 credit per contract share and the stock at the time of entry was priced at $180.30.

The Implied Volatility Ratio stood at 43.0%.

Premium:	$1.18	Expire OTM
JNJ-bull put spread	Strike	Odds	Delta
Puts
Long	172.50	73.0%	24
Break-even	178.68	65.5%	31.5
Short	177.50	58.0%	39

The premium is 47.2% of the width of the position’s short/long spread. The profit zone covers a 0.9% move to the downside and an unlimited move to the upside.

The risk/reward ratio is 3.2:1, with maximum risk of $382 and maximum reward of $118 per contract.

How I chose the trade. The trade was placed to coincide with JNJ’s earnings announcement, before the opening bell the day after the day of entry. The short strikes were set to coincide with the expected move of $2.95 either way, based on options pricing, which gives a price range of $177.35 to $183.25.

By Tim Bovee, Portland, Oregon, April 18, 2022

Disclaimer

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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Based on a work at www.timbovee.com.