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3 Put Spread Strategies For The Next Week: McDonald's, Johnson & Johnson And Nvidia

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McDonald's Corporation NYSE:MCD, Johnson & Johnson NYSE:JNJ - 3 Put Spread Strategies For The Next Week: McDonald's, Johnson & Johnson And Nvidia

Now may be a good time to start hedging your bets on some of the more overvalued stocks in the market. According to Deutsche Bank analyst Lon Parisi, shareholders of McDonald’s Corporation MCD 0.46%, Johnson & Johnson JNJ 0.12% and NVIDIA Corporation NVDA 2.28% should consider buying puts to protect against a broad market sell-off in coming weeks.

“While the rebound is a welcome sight a deeper look at some of the constituents within the S&P 500 and Nasdaq 100 suggests that some stocks are overvalued and could experience a retracement particularly in the face of a broad-market sell-off,” Parisi warned.

Deutsche Bank screened for stocks that could be particularly at-risk of falling victim to a market selloff and identified stocks that met the following criteria: forward PE at least 70 percent higher than five-year average, outperformed both the S&P 500 and respective sector in the past year, share price within 5.0 percent of all-time high and liquid options market.

After running the screen and analyzing he results, Deutsche Bank came up with the following three trade recommendations:

  • 1. Buy MCD Sep16 120-105 put spread for $2.44.
  • 2. Buy JNJ Oct16 105-95 put spread for $1.50.
  • 3. Buy NVDA May16 34.5-30 put spread for $0.74.

Disclosure: The author holds no position in the stocks mentioned.

DateFirmActionFromTo
Apr 2016Cowen & CompanyMaintainsMarket Perform
Apr 2016NomuraMaintainsBuy
Apr 2016BTIG ResearchMaintainsBuy

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