Boring Pharma Gets Exciting in a Bearish Way


Suddenly, a boring pharma has plenty of excitement, but all the wrong kind.

Johnson & Johnson (JNJ) was one of the dullest stocks in the Dow Jones Industrial Average before today. RadarScreen® shows it had the lowest implied volatility on its options of any member of the index, and the second-lowest historical volatility on its share price.

Then Reuters reported that the pharma giant deliberately concealed asbestos contamination of its iconic baby powder. Management disputed the article as “false and inflammatory,” but that didn’t prevent the stock from experiencing its biggest drop in over a decade.

It also pushed JNJ’s put volume above 200,000 contracts, the highest in at least 20 years of data. And, the company’s historical volatility over the last 30 days more than doubled from 15 percent to 32 percent.

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Just yesterday, JNJ closed at its highest level ever. Then today’s selloff erased almost five months of steady gains that followed two strong earnings reports.

In addition, it may threaten one of the few areas of the market that’s been holding up. Health care came into today up 11 percent on the year, making it the best-performing major sector in the entire market. Most of its relative strength emerged since the summer as investors shifted away from technology.

There have been some other negative headlines on the space. Earlier this week, for instance, J.P. Morgan downgraded heavyweight Pfizer (PFE). And today Goldman Sachs cut Walgreen Boots Alliance (WBA). Both PFE and WBA are fellow members of the Dow as well.

In conclusion, pharma stocks have been a relative safe haven of late. But now even they’re coming under pressure.

Johnson & Johnson (JNJ) with put volume and historical volatility.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.