For JNJ you have to have faith in the revenues but they are in a good space and project $25.5Bn against a $348Bn market cap, so 13.6 is a good p/e and they don't usually miss:
Debt is only $6Bn so yes, great time to get in and, for the Butterfly Portfolio, we should:
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- Sell 10 JNJ 2027 $140 puts for $12 ($12,000)
- Buy 20 JNJ 2027 $130 calls for $25.40 ($50,800)
- Sell 17 JNJ 2027 $150 calls for $14.25 ($24,225)
- Sell 5 JNJ April $145 calls for $6.10 ($3,050)
- Sell 5 JNJ April $145 puts for $6 ($3,000)
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That's net $8,525 on the $40,000 spread that's $30,000 in the money to start with $31,475 (369%) upside potential. We're using 105 of our 743 days so a good 6 x $6,000 more sales ahead of us gives us another potential $36,000 (422%) if all goes well (but when does it?).
That's the beauty of the Butterfly plays - they can make more money selling short-term puts and calls than the spread's potential and you can't lose on both sides. Since we don't think JNJ will fly up on us AND we think this is a good bottom - there isn't a lot of risk to our 2 uncovered calls.
