9/7/2020 Plan: We look to sell a put (or a put spread) in Johnson and Johnson (Ticker: JNJ)
9/7/2020 Plan (continued):
- JNJ – Sell 1 of the 2 October 140 puts for 1.67 or the 140/135 put spread for 0.71
- Prices are as of market close 9/4/2020, actual fill and strikes may differ depending on Tuesday’s open, post will be updated accordingly.
- All trades are for educational purposes and do not constitute advice
9/7/2020 Commentary:
On Wednesday, SPY hit an all time high of 358.75, by Friday it closed at 342.57 (and hit an intra-day low of 334.87). That’s a drop of 4.5% in 2 days (6.7% if we use Friday’s low). These kinds of moves will increase implied volatility in the market and many names, including “Blue Chip” names like Johnson and Johnson. We look to take advantage of an increase in IV in JNJ by selling a put.
JNJ reports earnings on 10/13/2020. The IV that week is 32.1%. We can get near Earnings IV by selling a put Before earnings, with the 2 October 140 put at an implied volatility of 30.7%. Given the relative stability of JNJ, we’er ok taking shares if the market continues to decline and we’ll then sell covered calls against it.
If one doesn’t really care for JNJ, has enough similar exposure, or simply doesn’t want to allocate the margin, take a look at the 140/135 put spread for 0.71, which provides a nice return on risk if JNJ stays above 140 of 16.6% (71/429 = 16.6%).
For the put sale, we’re risking $13,833 for the $167 in premium, which is a return of 1.2% for the next 3.5 weeks. This is about 17.5% annualized, which is within our goals. If margin is a concern, you can always pair it with a further OTM put like the 100 strike for about 0.10, which increases your return on risk and reduces your margin significantly. (157/3833 = 4.1%)
Reach out with any questions on this or any other trade!
9/8/2020 Entry:
JNJ 2 Oct 140 Put filled for 1.70, 140/135 put spread fills for 0.74. Both a bit higher than planned with the market down and JNJ down as well.
9/14/2020 Update:
This was a great week for the put and put spread. The put is down to 0.88 and the spread is down to 0.44. If you need to reallocate capital, one can definitely close the naked put for a quick $82 in profit. At this point, I’ll keep the positions on looking to collect additional profit. Note that much of our profit this week was from Implied Volatility dropping – this is a good example of why we look for elevated IV (vs. HV) in our put sales.
9/21/2020 Update:
With JNJ up a couple dollars on Friday and 1.40 on the week overall, our put and put spread continued to decay nicely. The put is only worth 0.44 at the mid point and the spread is down to 0.16. Either can be closed at this point to take off risk or re-allocate. I’ll personally keep the short put on for this week and I may close out the spread later this week (as always, text/email updates will be sent).
9/28/2020 Update:
Our positions in JNJ expire this week. With JNJ at 145.66 and this week’s expected move of 3.39 our put (or put spread) is expected to be safe. Having said that, we need to watch the position this week and look for a good opportunity to take it off if JNJ moves down. Given the high credit received on the put spread, taking it off at really any time is fine as it will be a nice win at current prices (0.23). The put itself at about 0.31 can also be taken off at any time for a nice win. Personally, I’ll be holding the put for a few days as I’m OK taking the shares at 140. If you traded the spread, make sure to take it off before expiration to avoid any unexpected assignment (unless you want the shares) if JNJ is close to the short strike.
9/30/2020 Close:
We close the short JNJ puts for just 0.02, taking in a terrific 1.68 on the put sale ($168) or 0.72 ($72) on the put spread. This was a nice win for our members that took the trade adding to a very profitable year.
Reach out with any questions on this or any other trade!
