Managing a difficult JNJ trade
February continues the slow start of the year, I am hoping it's the calm before the storm because the lack of volatility is resulting in fewer opportunities.
That said, this week's update is a little more interesting because it's not going to be a straightforward closing of a position for profit. Read on to find out.
Managing a floundering position in Johnson & Johnson
Managing a floundering position in JNJ
Back on Jan 24, I sold 1 JNJ put at the $160 strike for $92 in credit. JNJ had just reported earnings and the market didn't like what they had to say and sent the stock down. From the chart below you can see I entered when it was trading maybe $169, and figured selling a put nearly $10 away would be an good trade.
At the same time, JNJ has never touched or gone below $160, so the put has also remained out of the money the whole time (which is good). However JNJ's stock price has not quite climbed either, which is keeping the put premium high, resulting in the position currently trading at $144, which is an unrealised loss of $52. You can see these numbers in the screenshot below. This is what I refer to as a floundering postition - where the trade isn't really in trouble beause it's not in the money, but yet it's not profitable (or not profitable enough) to be taken off for a profit.
The added complication is that there's 13 days left to go in the trade, and I typically want to manage positions around this time because otherwise things can turn very quickly if this trade goes in the money.
So here are the options: 1 - JNJ stays above $160 - I'll consider reducing my profit target on the trade. Usually it's 50%, I'd be willing to take 25-30% if it means taking it off for a small winner. I can always re-enter the position again. This would be my preferred pick. 2 - If JNJ continues to drop to $161 or so, which means I can't take it off even for a small profit - then I'll continue to hold it for another week. If it continues to flounder right up to the day before expiration, I would consider leaving it and come back on Monday to see if I was assigned or not. 3 - If JNJ drops below $160, I'll roll the trade. I've actually been trying to pick up shares in JNJ through all of 2022 and collected nearly $2,000 in premium selling options in JNJ every month. This means if I do get assigned on the trade, my cost basis will be lower than $140 per share and I will be more than happy for that to happen. The important thing to note is there are so many paths I could take, and all of them give me some level of control as to how I'm going to deal with the option position, or the final stock position, if it comes to that. If you're buying and selling stocks or ETFs at market prices, you have none of this control.
This article is for educational purposes only. This is my own portfolio which is being managed according to my goals and risk tolerance. Your situation is likely different and you should do your own due diligence before investing in stocks or options.