Speculative Trade on J&J Earning Call Next Week

Johnson & Johnson (JNJ) is going to report earnings next Tue, Apr 19. As you know, I'm very bullish for JNJ at this level, but for long-term. In a short term, it is still facing significant issues, which may likely negatively impact on its earnings. Goldman Sachs analyst said JNJ will report earnings well below the expectation. I won't challenge this and would agree that this is a very likely outcome we will see next week. If so, its stock price will likely drop in the next few days, especially immediately after the earnings, if indeed lower, are announced. Actually I see this near term problem a trading opportunity to grasp some cash from JNJ stocks, while you may also establish or add your positions for the long-term investment at a better price. Here are 4 ways to benefit it if JNJ really misses the earning call:

(1) You can simply buy new or add more JNJ shares when the stock price drops. This is not a speculation but long-term investment. For such a good company, you should always feel happier to see its price dropping, which will give you more chances to expand your positions for your retirement.
(2) As a speculation, you can buy its put options, e.g. May $60 put options. The put options will increase in value if JNJ further drops from $60.
(3) A better speculative trade is to use so-called put spread: e.g. buy May $60 put options and at the same time sell May $57.5 put options. This will substantially reduce the cost/risk and increase the chance of profit. The only downside of a put spread is that it will cap the maximal gain; in this case, the maximal gain will be capped at $2.5 per share minus trading fees. For just a few days trading and given the size of JNJ, I don't expect the stock price will change too much. I'd be happy to have a gain of $2.5/share for a few days trading. Would you?
(4) Of course, you may also simply short JNJ stock directly, i.e. short sell JNJ at the current price. But you need to remember to buy back to cover your JNJ shares, hopefully at a lower price.

Good luck!