As I write the S&P 500 (SPX) is unchanged after yesterday’s 2.5% surge, not bad action, especially when you consider how many market participants have been eyeing a series of closes above 1950, to possibly confirm the sort of W bottom that occurred in August and September. At this point it kind of feels like the SPX makes a run to its 200 day moving average at 2025:
Even at 2025, the index remains in a downtrend from the May 2015 highs, making a series of lower highs and lower lows.
While the rally this week has been on generally low volume, there were a few options trades that caught my eye where investors appeared to define their risk while betting on higher prices, possibly levering up existing longs for a push back to their prior 52 week highs:
Johnson & Johnson (JNJ): when the stock was $107.31 a trader paid $2.60 for 10,000 of the July 110 calls to open or $2.6 million in premium. These calls break-even at $112.60, up about 5% on July expiration. JNJ has out-performed in 2016 given its perceived defensive status as a consumer staple, its solid balance sheet and dividend yield of 2.8%. The stock trades about 16.5x 2016 expected earnings, about a market multiple for 5% earnings growth. The five year chart below shows the choice of call strike, right at JNJ’s prior high from late 2014:
Verizon (VZ): another stock that has outperformed in 2016, up 12%, due to its defensive status, with 100% revenue reliance on the U.S. and 4.35% dividend yield. Today when the stock was $52 a trader bought to open 6500 of the May 55 calls for 30 cents. VZ today is making a new 52 week high, and like JNJ, the call strike bought is interesting as it is just above its all time highs made in 2013:
Molson Coors (TAP): The beer maker saw some opening out of the money call buying today. When the stock was $85.86 a trader bought 2500 of the October 95 calls for $3.35, these calls break-even up at $98.35, up nearly 15% from current levels. Like the other two, the call strike is very near the 52 week or all time highs: