Put buying suggests slight drop ahead.
The April 2020 $115 put options on Procter & Gamble (PG) saw a nine-fold surge in trading volume, from 174 contracts to over 1,500.
Shares of the consumer goods company would need to fall by about $5 for this option to move in-the-money in just under six months.
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This kind of bet is a sign of hedging activity, given the small size of the potential pullback, and the timeframe on the options.
The consumer goods giant has had a fantastic twelve months, logging a 31 percent surge that has beaten the S&P 500’s 18 percent return in the same time. Any investor betting on a market pullback would want to bet on companies that outperformed the market going up having a bigger percentage drop heading down.
Action to take: We like this options trade, as a relatively cheap hedge for a broad market pullback, or for PG shares to come back to a more reasonable price than their forward PE ratio of 23.
Investors looking to own shares should do so, as the industry leader is a great company to own for the long-term. But set some cash aside for a pullback to $115 or so, for a better valuation and higher starting dividend yield. Owners of shares may want to sell covered calls at these prices to hedge their holdings and increase their income as well.