Friday Options Brief: JNJ, GT & LVS

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Includes: GT, JNJ, LVS
by: Interactive Brokers

Johnson & Johnson (NYSE:JNJ)Shares of the world’s largest maker of health-care products are lower by 1.90% to $58.64 in morning trading. Put activity on the stock suggests one pessimistic player is bracing for further bearish movement in the price of the underlying shares ahead of June expiration. Perhaps pessimism on JNJ stems from the continuing – and now expanded – investigation into drug manufacturing at the firm following the “phantom recall” wherein, allegedly, Johnson & Johnson hired contractors to buy up defective Motrin tablets in stores rather than issue an immediate formal recall of the medication. JNJ officially recalled more than 40 children’s medications on April 30, 2010. Johnson & Johnson shares are down 10.25% since the April 30th recall. Regardless of the motivation for the bearish put activity, the put spread strategy implemented in the June contract this morning suggests shares could fall significantly lower in the next few weeks. The investor responsible for the trade purchased 1,000 puts at the June $57.5 strike for an average premium of $0.67 apiece and sold the same number of puts at the lower June $55 strike for a premium of $0.22 each. The net cost of the spread amounts to $0.45 per contract. Thus, the trader stands prepared to make maximum potential profits of $2.05 per contract if JNJ’s shares fall another 6.2% to breach $55.00 by expiration day. The overall reading of options implied volatility on the stock is up 10.1% to 21.54% as of 11:05 am (ET).

Goodyear Tire & Rubber Co. (NYSE:GT)The Ohio-based manufacturer of tires and other rubber products enticed bullish investors to the front month in morning trading despite the 0.33% decline in its share price to $12.02. Optimistic options players are positioning for a sharp rebound in GT’s shares by purchasing roughly 3,600 calls at the June $12.5 strike for an average premium of $0.29 per contract. Call-buyers make money if shares of the underlying stock rally 6.40% from the current price of $12.02 to surpass the average breakeven price of $12.79 by June expiration day. The jump in investor demand for calls on Goodyear bumped up the stock’s overall reading of options implied volatility 14% to 59.53% as of 11:10 am (ET).

Las Vegas Sands Corp. (NYSE:LVS)Earlier in the session the casino operator’s shares rallied more than 2.10% to an intraday high of $25.46, but as the morning progressed, Las Vegas Sands’ shares surrendered gains to stand 0.30% lower on the day at $24.85 as of 10:50 am (ET). Call buying observed on the stock during the past couple of trading days continued this morning with bullish investors positioning for share price appreciation and a new 52-week high for LVS ahead of June expiration. Options traders purchased at least 8,800 calls at the June $26 strike for an average premium of $0.86 apiece within the first 90 minutes of the session. Call-buyers make money if, by expiration, LVS’s shares rally 8% from the current value of $24.85 to surpass both the current 52-week high of $26.56, and the average breakeven price of $26.86.