High Tide? – Procter & Gamble (PG)

by Dan April 25, 2017 2:59 pm • Trade Ideas

Procter & Gamble (PG) reports their fiscal Q3 earnings tomorrow morning before the open, the options market is implying a $1.85 move between now and Friday’s close, or 2% in either direction. Surprisingly the stock has posted 3.2% one-day gains following the last two earnings reports (late Jan and late Oct) followed by a 3.7% one-day gain on February 14th on the announcement that activist investor Nelson Peltz took a $3.5 billion stake in the company.


Nearly 60% of PG’s sales come from outside the U.S., so with the U.S. dollar index (DXY) down about 5% from its 2017 highs made in early Jan, and down about 2% since the company last guided in late Jan, this might buoy earnings results:


This is pure conjecture, but I suspect with an activist like Peltz on the case, management is likely to dress up the quarter and guidance to make it look as good as possible to avoid giving Peltz further ammo to make whatever case he intends to push management to do his bidding.

With three Dow Jones Industrial components Caterpillar CAT), McDonald’s (MCD) and MMM all making new 52 week and in some cases all-time highs, will PG follow suit tomorrow??

Defined Risk Bullish

Buy the PG April28th 91/93 call spread for .40

  • Buy 1 April28th 91 call for .50
  • Sell 1 April28th 93 call at .10


Breakeven on April 28th expiration: 91.40

Losses of up to .40 below 91.40, Gains of up to 1.60 above 91.40 with max gain at or above 92

Rationale – PG is threatening a breakout above the 10 dollar range it’s found itself in for the past 2 years but it will likely find initial resistance at 92 and that’s a good area to target. The implied move is just below 92. This trade is extremely binary and could be worthless on a move lower. But it is less than a move lower in the stock would likely be. And if the stock makes a move inline with its implied move to the upside it will be worth more than 3 times it’s cost/risk.