In early August we placed a bullish trade in a defensive stock that we thought had been adequately punished for the better part of 2015, Proctor & Gamble (PG), read here. We decided to add a little yield to the long by selling an out of the money call. To refresh here was the trade from August 5th:
Trade: Buy 100 shares PG for $76, Sell to Open 1 Oct 80 call at 40 cents
Now with the stock at $74.25 we are down $1.75, or about 2.3%, the short call is set to expire worthless this Friday. So less the call premium the loss in the stock is reduced to about 1.8%. Shares of PG have been all over the place since early August, having almost immediately breaking down after we bought it, trading as low as $65 in the August 24th flash crash, then breaking the opening Aug 24th low in mid Sept, before regaining most of the ground of late. I expect $75 to serve as formidable technical resistance.[caption id="attachment_57653" align="aligncenter" width="600"] PG 1yr chart from Bloomberg[/caption]
Given the WMT news this morning, and the stock’s 9% losses, PG no longer has the same beaten up feel to it that it did in early August. How low is low enough when the fundamentals are weak? Your guess is as good as mine.
I am going to cut the loss in the stock and place a one cent bid in the short calls to close.
Action: Sell to close 100 Shares of PG at $74.30 for a $1.70 loss less 39 cent premium gain of short calls.
The stock goes ex-dividend on Oct 23rd (66 cents), with a payable date of Nov 16th. I am not willing to wait with earnings scheduled for Oct 23rd.