Procter & Gamble (PG) – Crest Fallen

by CC October 13, 2017 2:50 pm • Trade Ideas

Procter & Gamble (PG) is up 11% on the year, that’s impressive. But on the other hand it is underperforming the SPX (up 14%) and the Dow which is up nearly 16%.

PG is down 1% from its recent 52 week high which was also a new all-time high which some technicians highlighted was a rejection at the prior all-time high from late 2014 making an epic double top
 
How that rejection plays out from here is anyone’s guess. But implied volatility in the name is currently quite low, like it is in most names at the moment, and that provides some opportunity for directional positioning with defined risk.
PG reports Q3 results on Friday before the open. the options market is implying less than a 2% move in either direction. That’s shy of its 4 qtr avg one-day post-earnings move of about 2.5%, but more importantly this low vol comes at a possible inflection point in the stock. Directional bets up or down are dollar cheap.
 
In this case, let’s look at the breakout potential. If you think the company, just off of its proxy fight with Nelson Peltz has every incentive in the world to print a big earnings number and offer upbeat guidance, and the stock will break out to a new all-time high, then weekly at the money options are cheap as chips:

TRADE: PG ($93.20) Buy Oct 93 call for 90 cents, or less than 1% of the stock price.

Break-even on Next Friday’s close:

Profits above $93.90, just below the all-time high,

Losses of up to 90 cents between 93.90 and 93.00 with max loss below 93, or less than 1% of the stock price.

Rationale – Risking less than 1% of the stock price for a potential breakout that could take the stock up at least a couple of percent on the event. If the stock fails the risk is well defined.