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Is Johnson & Johnson Unhealthy for Your Portfolio?

Johnson & Johnson
Adam Jeffery | CNBC

U.S. markets on Wednesday are following Europe's sell-off, with stocks being led down by traditionally safe, defensive sectors like the utilities and health care. Johnson & Johnson is one of those names getting sold, and it is seeing bearish option activity, as well.

The biggest trade this morning was the sale of 3,179 July 90-strike calls for $0.55. This a is neutral-to-bearish bet that the stock will be below $90.55 at July expiration.

There are a few reasons to bet that Johnson & Johnson, which is up 21 percent year to date when the S&P 500 is only up 13 percent, is due for a breather. The stock has slightly outperformed the health-care sector this year, benefiting from a flight to safe, defensive, and dividend-paying names.

(Read More: Johnson & Johnson's Stock Looks Too Healthy)

However, the stock's price-to-earnings ratio of 23.75 is near levels not seen since 2005, and suggests that the stock's price has gotten a bit ahead of its earnings. One point of concern is a potential decline in earnings from the company's medical devices and diagnostic sales, which are traditionally very profitable sectors.

If you are long this stock, now is probably a good time to revalue your portfolio and to do some rebalancing. Trimming a big winner like Johnson & Johnson is never a bad idea, and one way to do that is by selling calls. By selling a call against a long stock position, this trader has indicated a willingness to take profits on the shares at $90. In exchange for agreeing to do that, the trader has been given $0.55. Annualized, that would be a 3.8 percent yield, and this is an excellent supplement to the stock's three percent dividend yield.

Selling calls like this is a great way to play a potential summer range in the market.

Disclosures: None to report.

Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action." Follow him on Twitter: @BrianStutland