Weekend Trader Series
November 20, 2022
Open Positions Update
- Close the Chevron (CVX) December 16, 2022, 140-strike call on Monday, November 21. Close the position at a limit price within the range of the current market price when you place the order.
- The Travelers (TRV) December 16, 2022, 160-strike call reaches its time-stop this Monday, November 21. Close the position at a limit price within range of the current market price when you place the order.
The following is this week's recommendation:
Johnson & Johnson (JNJ)Place a limit order to buy the Johnson & Johnson (JNJ) February 17, 2023 165-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, November 18, this option was offered at $14.60. JNJ closed at $176.20 on Friday, November 18.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, December 19, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
The shares of Johnson & Johnson (JNJ) crossed over their 50-day moving average in mid-October, and recently retested this area. This trendline is now rising, after a five-month period of downward movement. Plus, the equity is back above its October high, with Friday’s candle sitting above a trendline connecting lower highs since its April peak. JNJ has also surpassed its 2022 breakeven at the $171 region, as well as the $172.41 level, which coincides with the round $450 billion market cap.
The stock’s breakouts follow its quarterly earnings report last month, as well as a long period of trading between the $164 and $167 range that began in August. This area is also where shares stood when the company announced it would split its pharmacy and medical devices businesses last year. In addition, it’s worth noting Johnson & Jonson just received Food and Drug Administration (FDA) approval for its Tecvayli treatment for multiple myeloma.
A huge batch of 180-strike calls expired this Friday, suggesting the “call wall” at that level has become smaller. What’s more, there’s a decent amount of out-of-the-money put open interest (OI) for January, which could lend support into expiration as shorts unwind their positions.
The options pits lean bearish, given the security’s 20-day put/call volume ratio of 1.38 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The last time this ratio was this high was in March, before JNJ scored a double-digit percentage gain in two months. Back then shares also broke out above a trendline of resistance from lower highs in July 2021, January, and February – similar to what we are seeing right now.
Despite its recent outperformance, 14 of the 23 analysts in coverage still call JNJ a tepid “hold,” leaving plenty of room for upgrades moving forward. Our recommended February 165-strike call has a leverage ratio of 9.5 and will double in value on a 10% pop in the underlying shares.
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