Shares of Proctor & Gamble (PG) are dead flat on the year after this week’s sell-off of 5% from last Friday’s 52-week and all-time high made last Friday. That relative outperformance on the year is even more impressive when you consider the 30% rally from its 52-week lows made in early May! To my eye, the stock is just below resistance at what might be a double top, and the next target to the downside would be the Oct earnings gap in the low $80s:
Much like the bearish trade idea in the XLU, the Utilities etf, from Dec 4th (here), its my view that things get worst before they get better in the stock market, correlations will go towards one, and expensive stocks like PG, or groups like Utes, will ultimately join the party to the downside (which utilities just started to do this week).
If I were looking to play for a gap fill I would target PG’s fiscal Q2 earnings that should fall in the third week of Jan to serve as a catalyst to help achieve the gap fill… Oh and 55% of PG’s sales come from outside the U.S. the strength of the U.S. dollar, and continued fears of trade distribution might ultimately start to weigh on all U.S. multi-nationals, even stocks deemed to be “defensive” like PG.
So what’s the trade?
Trade Idea: Buy PG ($91.80) Jan 90 / 82.50 put spread for 1.50
-Buy to open 1 Jan 90 put for 1.90
-Sell to open 1 Jan 82.50 put at 40 cents
Break-even on Jan expiration:
Profits of up to 6 between 88.50 and 82.50 with max gain of 6 below 82.50
Losses of up to 1.50 between 88.50 and 90 with max loss of 1.50 at 90 or higher
Risk 1.50 to possibly make up to 6 if the stock is down 10% on Jan expiration.