Shares of consumer goods company Procter & Gamble (PG) moved higher earlier this week on earnings, although the company did warn on the effect of a strong dollar. One trader sees that as bearish.
That’s based on the January 2024 $80 puts. With 455 days until expiration, 5,002 contracts traded compared to a prior open interest of 214, for a 35-fold rise in volume on the trade. The buyer of the puts paid $1.78 to make the trade.
Shares recently traded near $130, so they’d need to decline $50, or nearly 40 percent, for the option to move in-the-money. With the stock only down 9 percent in the past year, about half as much as the S&P 500 in a sharp bear market, that could be a bit of a stretch.
P&G has seen shares drop from 30 times earnings last year to about 22 times earnings today. That’s still a bit expensive to the overall market, but the company is seen as recession-resistant and capable of raising prices to deal with inflation.
Action to take: Investors may like to start accumulating shares on a move lower to the $120 range as a place to start buying shares. The company pays a dividend yield of about 2.9 percent at current prices.
For traders, the short-term trend is still down. And with a potential drop in earnings in the coming quarters, the inexpensive put options could deliver high-double-digit gains even if shares never move in-the-money.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.