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Large Option Traders Aren't Buying The Johnson & Johnson Rally

Wayne Duggan

Johnson & Johnson (NYSE: JNJ) shares traded higher by 2% on Wednesday on reports of potential opioid settlement negotiations, but at least a handful of large option traders aren’t optimistic that the J&J rally will last.

The Trades

On Wednesday morning, Benzinga Pro subscribers were alerted to several unusually large Johnson & Johnson option trades. The two largest trades of the morning were both bearish in nature”

  • At 9:47 a.m., a trader sold 850 J&J call options with a $135 strike price expiring on Friday at the bid price of $1.601. The trade represented a $136,085 bearish bet.
  • At 11:31 a.m., a trader sold 900 J&J $135 call options expiring on Nov. 15 at the bid price of $3.451. The trade represented a $310,590 bearish bet.

In addition to the two trades above, there were two large bullish J&J trades of puts sold at the bid and one additional large bearish trade of J&J calls sold at the bid.

Options Insight

Even traders who focus exclusively on the stock market watch the options market closely to gain insight into what option traders may be thinking.

Due to the relative complexity of the options market, options traders are generally seen as more sophisticated than the typical stock trader. Large options traders are often institutions or wealthy individuals that may have a unique perspective and/or advance information on a given stock.

Unfortunately, there’s no way to be 100% certain whether the buys are a standalone position or a hedge against a larger stock holding.

Given none of Wednesday’s large J&J trades was above $400,000 in size, they would be relatively small to be institutional hedges.

Opioid Settlement A Turning Point?

Opioid litigation uncertainty has been a major overhang for drug producers in 2019, but shares rallied Wednesday on news there may be a light at the end of the tunnel. The Wall Street Journal reported distributors Cardinal Health Inc (NYSE: CAH), McKesson Corporation (NYSE: MCK) and AmerisourceBergen Corp. (NYSE: ABC) are all in settlement talks with state and local governments.

WSJ also reported J&J is in talks to contribute opioid settlement money ahead of a major opioid lawsuit set to kick off in Ohio next week.

Cardinal Health had two large option trades on Wednesday morning, one a put sale at the bid and one a call sale at the bid. McKesson had only one large call trade at a neutral price near the midpoint of the bid-ask spread. Endo had no unusually large option trades on Wednesday morning.

Benzinga’s Take

Despite the two large bullish trades in J&J on Wednesday, option traders don’t seem particularly enthusiastic about the opioid drug group following the settlement reports. Wednesday’s option trading action suggests traders are at the very least skeptical of the large rally in these stocks following the news.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Analysts, Investors Like Johnson & Johnson's Improvement, But Lawsuits Loom

After Earnings Beat, Wall Street Talks Johnson & Johnson Litigation Risk

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