Johnson & Johnson is a Dow 30 stock that has helped pull the blue chip average higher for nearly a year. However, lest we begin to think that its by-now parabolic upthrust can continue indefinitely, I’ve selected a chart for your perusal that shows a compelling obstacle not far above, at 85.95. July puts, with an implied volatility of around 15, look cheap to me, so let’s use them to get short if and when the target is closely approached. Specifically, I’ll recommend buying four July 82.50 puts with the stock trading within 10 cents of the target. You should stop yourself out if the options subsequently trade for 0.20 less than you paid. ______ UPDATE (6:59 p.m. EDT): The institutional lunatic fringe may yet drive this portfolio favorite high enough to get us short. JNJ was one of the few stocks that managed to swim against the bearish tide yesterday, corroborating our upbeat outlook for the near term. _______ UPDATE (April 22, 3:15 a.m. EDT): A minor but nonetheless fetching rally target at 85.73 has come into focus (see inset), giving us yet another reason to get short not far above. Specifically, you should buy four July 82.50 puts with the stock trading between the two targets given above. We’ll risk $100 theoretical on this trade, implying you should stop yourself out if the puts trade for 0.25 less than you paid for them._______ UPDATE (April 24, 12:11 p.m. EDT): A nasty short squeeze on the opening bar hit 85.74, a penny above our target, before sellers pounded the stock back down to a so-far low of 84.75. For tracking purposes, I’ll record four puts purchased for 1.23, midway between the 1.25 opening and the 1.20 intraday low. Take a partial profit now, selling two of the puts (or half your position, the greater) on a 1.35 bid. Tie the remaining two puts, which have an profit-adjusted cost basis of 1.11, to a 1.15 stop-loss. In theory, the worst we can do is break even. Keep in mind, however, that odds will always be against catching the exact top of a JNJ bull market that has been rampaging for nearly a year. _______ UPDATE (April 30, 12:04 a.m. EDT): We scratched the trade on the close when the options hit an intraday low of 1.15 to trigger our stop-loss. Let’s do it again — because we can, very nearly risklessly — buying four July 82.50 puts if the stock gets within a nickel of the next Hidden Pivot target above, 87.53 (see new chart, inset). _______ UPDATE (May 2, 1:47 a.m.): We’ll set aside the short from 87.53 for now, since JNJ impulsed decisively to the downside with yesterday’s bull-trap selloff.
