Market Overview

Johnson & Johnson Option Trader Makes $1.7M Bet On 17% Upside

Johnson & Johnson Option Trader Makes $1.7M Bet On 17% Upside

Johnson & Johnson (NYSE: JNJ) shares are up 36.1% in the last three months amid a broad market recovery. While the near-term economic outlook is unclear given COVID-19 uncertainty, one large option trader made a big bet Wednesday that Johnson & Johnson shares are headed much higher in the long run. 

The Johnson & Johnson Trade

On Wednesday morning, Benzinga Pro subscribers received an option alert related to an unusually large Johnson & Johnson trade:

  • At 10:18 a.m., a trader bought 1,800 Johnson & Johnson call options with a $155 strike price expiring in June 2022 at the ask price of $9.60. The trade represented a more than $1.72-million bullish bet.

Why It’s Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of Wednesday’s Johnson & Johnson option trade, it could certainly be institutional hedging.

Johnson & Johnson’s Guidance Update

On Wednesday, the Missouri Court of Appeals reduced Johnson & Johnson’s damages related to a lawsuit linking the company’s talc powder to cancer in 22 women from $4.69 billion to $2.12 billion.

The stock didn’t react much to the ruling given that Johnson & Johnson still faces significant legal liability in other cases related to the talc powder and the opioid epidemic.

Johnson & Johnson also provided a general guidance update this week in a conference call with BofA Securities analyst Bob Hopkins.

In the call, CFO Joe Wolk said Johnson & Johnson's medical device sales are tracking to be down nearly 50% in April and May. The company is confident it will outpace peer growth in its consumer and pharma businesses in 2020.

Wolk also said the company is planning to appeal this week’s Missouri ruling all the way to the state Supreme Court. Johnson & Johnson also said it is anticipating an opioid settlement potentially by the end of the year.

Finally, management said it is expecting to begin testing a potential COVID-19 vaccine in human subjects by the end of July.


Benzinga’s Take

Wednesday’s large option trader may be betting that Johnson & Johnson will ultimately win the race to bring a coronavirus vaccine to market, or the trader may simply be betting that concerns over talc powder and opioid litigation are overblown.

The June 2022 calls have a break-even price of $164.60, suggesting at least 17.4% upside from current levels.

Do you agree with this take? Email with your thoughts.

Related Links:

Union Pacific Option Trader Makes $1.2M Bet On 5% Downside

How To Read And Trade An Option Alert

Photo by Mattman723 via Wikimedia


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