Johnson & Johnson (NYSE: JNJ - option chain) shares are rising today after the company reported third-quarter earnings of $1.17 per share, which beat estimates of $1.11. Revenues were $15.9B as opposed to $15.7 billion expected and JNJ lifted its full year forecast by about a nickel as well. Defensive names like JNJ typically perform better than the rest of the market in weak economic times, and this morning's results show that to still be true for JNJ. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on JNJ.
JNJ opened this morning at $66.50. So far today the stock has hit a low of $64.15 and a high of $67.48. As of 12:35, JNJ is trading at $64.65, up $1.97 (3.1%). The chart for JNJ looks bearish but S&P gives JNJ a 5 STARS (out of 5) strong buy ranking.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $50 range.
A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.3% return in just three months as long as JNJ is above $50 at January expiration. Johnson & Johnson would have to fall by more than 22% before we would start to lose money. Learn more about this type of trade here.
JNJ hasn't been below $52 at all in the past year and has shown support around $55 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in JNJ.
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