Trade of the Day: Proctor & Gamble (PG)

by Jon Markman | May 13, 2014 9:31 am

Stocks rose materially higher Monday, pushing the Dow Jones Industrials and S&P 500 into record territory, as first-quarter earnings season begins to wind down with mostly better-than-expected results from companies.

Technology and small-cap stocks are rebounding from recent lows, and merger activity remains strong, providing a firm undertone to the trading landscape. Private investors figure that if companies are willing to use their cash to buy companies after a lot of due diligence, they might as well, too. And that’s my strategy, as well, as my buy list is stocked with bullish plays.

An ideal way that traders can get positioned in stocks for a lot less capital is by using options, which allow you to control 100 shares of underlying stocks for a fraction of the price. The great thing is that when you buy options for their own value, you don’t have to exercise them and you’re not obligated to purchase the shares, but you do benefit – and often significantly – when the stock moves up if you have bullish call options, or if the stock moves down if you hold bearish put options.

But, as I’m biased to the bull side[1] at the moment, let’s look at a smart way to play one of the best-known stocks with much less capital.

Consumer-products maker Procter & Gamble (PG)[2] produces such iconic American grocery store goods as Tide, Oil of Olay, Head and Shoulders and Pantene.

While consumer staples manufacturers were left out of Monday’s rally, they were the strongest during the recent downturn. Shares of consumer-staples stocks are performing very well this year, and PG has been among the best. The stock pulled back last week before rallying 1.2% this past Wednesday. It should not have a problem regaining the $83.50 area.

You could certainly buy the stock at around $82 a share, but the way I recommend trading it is by buying call options to the tune of about $260 a contract, which will offer you greater leverage on the stock’s move and, thus, greater reward.

Buy the PG June $80 calls (PG140621C00080000) at $2.60 or less.

Set up to sell the position at my initial target of $3.30. And place a stop loss to exit the position at $2.10, good after 11:00 a.m. ET only.

Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.

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  1. biased to the bull side:
  2. PG):

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