By Jud Pyle, CFA, chief investment strategist for the Options News Network

Johnson & Johnson

(JNJ) - Get Report

frequently has gotten press during this bear market as being a typical safe haven stock.

The idea of safe haven was that the health care and consumer products company's business was immune enough to a recession that the shares could hold up. While it may not have been a safe haven for people who bought the shares and have watched them slide from $70 to $57 today, a look back at a strangle sale made less than three weeks ago demonstrates that JNJ was a safe haven for at least one strangle seller.

On Jan. 8 in this column, I wrote about am investor who sold 6,500 of the Feb 55-60 strangles for a price of around $2.95. We said at the time that the investor was likely taking advantage of the fact that in the preceding weeks, the stock had been in a range between 55 and 60, despite being as high as 70 back in the summer. A look at the price of that strangle now demonstrates how the investor was able to make money on a view without trading the stock.

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The JNJ Feb 55 puts are now offered at 70 cents, and the Feb 60 calls are offered at 40 cents. So the investor could now cover his short strangle for $1.10 if he so chose, a profit of $1.85. The stock was trading a $59 on the day that the strangle was sold, and is currently trading $57.40. So the strangle has generated more profit than even a sale of the shares would have generated at this point in time.

We noted at the time of this trade that part of the reason that the investor was able to collect such a premium for the strangle was because JNJ earnings were set to be announced before the market opened on Jan. 20. When those numbers were reported and the stock did not move violently, it further benefited the strangle seller.

Selling strangles is not for the faint of heart. There is risk if the stock rises or falls, not just one way direction. There is also risk because if implied volatility spikes, the strangle seller can lose with the stock not moving at all. However, looking at this one specific example demonstrates how as we progress through earnings season, some of the bets that investors have made on declining volatility are paying off. If risk tolerance remains en vogue, we will continue to see declining strangles and a declining VIX.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."