Friday, July 10, 2009

JNJ Long Calls

Johnson and Johnson (JNJ) has been grinding up the last several months and during the recent market pullback has not shown much weakness. In fact, it's in a tight consolidation near 6 month highs and I think it has a nice shot of breaking out of this tight range and head higher. The 20 and 50 day moving avg's are close to crossing over the 200 day.

The one wildcard is earnings being released next Tuesday morning. JNJ is not a big mover and actually has pretty low implied volatility in the 20s. It usually does not move much off earnings and so the options market does not price in a move. This means you can get a relatively good deal buying options straight up.
You could either get in long here or wait for the breakout above 57.25.

Buy the August 55 calls for $2.60 or better. I would be cutting losses on this trade if JNJ got below 55 as this is a very strong support level. My target on this trade is the 59-60 level.

I like this trade as a defensive long position in an overall market that is fading lower.

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