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Quick Income from a Put Write on Johnson & Johnson

JNJ is standing tall

Earnings season is upon us, and Johnson & Johnson (NYSE:JNJ) will kick off second-quarter reporting for the big pharmaceutical stocks on July 16.

Yesterday the market briefly erased all its 2020 losses before turning negative. Part of this is probably from the news that California Gov. Gavin Newsom is shutting down indoor operations of some businesses, including restaurants and bars.

California could be the only state to take this move in the wake of rising COVID-19 infection rates, but it is still one of the largest economies in the world.

When a few of the FAANGM mega-cap stocks gave up their gains, we got to see some of the market’s weakness, and more could follow.

JNJ, though, being a pharmaceutical company, may weather any coming storm.

The All-Important Vaccine

If you recall, I said my indicators were bearish early last week. Two weeks before that, they were bearish.

But the market kept its bullish edge.

Well, we’ve seen just how much of that bullishness was driven by the mega-cap stocks, but it’s not as if every other stock was performing poorly.

During yesterday’s pullback, JNJ pushed nearly 2% higher.

One major reason is the fact that it is one of the largest pharmaceutical companies in the world, and it is working on a COVID-19 vaccine.

Investors have been buying up any pharmaceutical company working on a treatment or a vaccine. JNJ’s major advantage over smaller companies like Moderna (NASDAQ:MRNA), Gilead Sciences (NASDAQ:GILD) and BioNTech (NASDAQ:BTNX) is its resources.

Whichever company gets to the vaccine first will probably see a lot of buying.

We’re Not Waiting to Collect on the Vaccine

We can’t predict who will win the race to create a COVID-19 vaccine, but we don’t have to in order to successfully profit off JNJ.

Volatility is still unusually high, and that isn’t going to change anytime soon. That means option prices are higher, and we can collect more premium by selling a put write against JNJ.

In the chart below, you can see that it pulled back slightly last week, and until yesterday, the stock has been trading between its 50-day and 200-day moving averages.

Johnson & Johnson JNJ Daily Chart

Daily Chart of  Johnson & Johnson (JNJ) — Chart Source: TradingView

JNJ is still dealing with the fallout from last year’s talc lawsuits, but that hasn’t stopped its recovery. I don’t think a lackluster earnings report could push it below support at around $137.

Even if it does, I’m recommending a put write with a strike price well below that level.

Sell to open the JNJ Aug. 14th $120 put at about $0.35.

Note: Be sure you are opening the weekly JNJ options that expire on Friday, Aug. 14, 2020.

This is a high-risk trade, so take a small position.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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