A recent earnings report has turned up something other than the smell of roses for Procter & Gamble Co (NYSE:PG). But while it’s not the scent of slaughtered bulls in PG stock, conditions do suggest would-be investors look to buy more smartly using a butterfly put spread. Let me explain.
Since releasing its Q1 quarterly confessional back in late October, Procter & Gamble shareholders have been less than quick to pick up PG stock. The owner of popular consumer household brands such as Bounty and Tide is off by roughly 5.5% and trading near its recent lows.
The pressure in PG stock follows a mixed laundry list of items that includes a modest sales miss, even slighter penny profit beat and weaker-than-expected results within its Grooming and Care categories.
Coupled with early October’s activist investor defeat by the narrowest-of-margins which suggests less-than-pleased shareholder confidence in PG stock’s management; the tide has changed on the price chart with bears preparing to clean up.
PG Stock Weekly Chart
As the weekly chart of PG stock shows, bears have gotten a whiff of Procter & Gamble and appear to be making themselves at home in shares. As mentioned, the mixed earnings release has put PG under pressure since reporting in October. Compounding matters for bulls, a rally over the last two years which had already resolved itself into a slightly less steep uptrend has been decisively broken.
In truth, the breakdown of the second trend-line may not be the end all, say all for PG stock. At the end of the day, there are no guarantees with chart patterns.
But given the aforementioned concerns off the price chart, the interpretation is the bears aren’t finished cleaning up just yet and investors looking to buy shares may wish to exercise patience or use Procter & Gamble’s options market.
PG Stock Long Butterfly Spread
Reviewing PG stock’s options for positioning ideas, the Dec $85/$82.50/$80 put butterfly combination is an interesting way to play a breakdown with a secondary motive of buying shares at a discount to today’s prices.
Priced for 30 cents with shares at $86.73, a buyer of this spread limits risk to the small debit on either side of the wings at expiration. Thus, if PG stock trades aggressively lower to the point where Procter & Gamble looks more compelling to buy; a decision to purchase stock would only be underwater by less than 0.40% of the actual share price. Nice!
What’s more, with this strategy sets the trader up for profits within a range from $80.30 to $84.70 at expiration. That’s roughly 2.5% to 7.5% below the current price in PG stock. And if shares were to finish at $82.50 on that third Friday in December, that would be an early Christmas present as this investor stands to clean up by $2.20 or more than 725%!
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based on Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
