Monday, July 13, 2015

JNJ Analysis

Update 7/25/2015: JNJ expired on July for maximum profit. Shares declied by 1.0% over 12 days, or a -26% annual rate. The options produced a 100% yield on debit, for a +1,200% annual rate.

The health-care products company Johnson & Johnson (JNJ), headquartered in New Brunswick, New Jersey, publishes earnings on Tuesday prior to the opening bell.

[JNJ in Wikipedia]



Click on chart to enlarge.
JNJ at 12 p.m. New York time, 30 days hourly bars
Implied volatility stands at 18,1%, which is 1.2 times the VIX, a measure of volatility of the S&P 500 index. JNJ’s volatility stands in the 70th percentile of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

I shall use the JUL4 weekly series of options, which trades for the last time 11 days hence, on July 24.

Iron condor, short the $102 calls and long the $104 calls,
short the $97.50 puts and long the $95.50 puts,
sold for a credit and expiring July 25.
Probability of expiring out-of-the-money

The premium is $0.42, which is 21% of the width of the position’s wings. The stock at the time of purchase was priced at $100.0.

The zone of profit in the proposed trade covers a $2.25 move either way. The biggest immediate move after each of the past four earnings announcements was the same, $2.75, and the average was $1.75.

The risk/reward ratio is 3.9:1.

Decision for My Account

I've opened a position in JNJ as described above.

-- Tim Bovee, Portland, Oregon, July !0, 2015


My volatility trading rules can be read here.


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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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