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Puts were in high demand on The Procter & Gamble Company (NYSE:PG - 69.92) on Friday. Around 21,000 contracts crossed the tape, representing more than two times the average daily volume for put options. As a point of comparison, fewer than 5,900 calls changed hands, about a third of what was expected.
PG's December 67.50 put was the most-active strike of the day, and saw close to 13,800 contracts trade. The majority of these crossed at the ask price, implied volatility ticked 1.9 percentage points higher, and open interest jumped by around 11,500 contracts over the weekend -- all signs of buy-to-open activity. By initiating these out-of-the-money puts, traders will profit with each step south of $67.26 (the strike minus the volume-weighted average price [VWAP] of $0.24) PG takes through December expiration. This is a 3.8% drop from current levels.
Widening the scope, it seems Friday's preference for puts was a change of pace for option players. In fact, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than three calls for every put during the past 10 sessions. What's more, this call/put volume ratio of 3.03 ranks in the 71st percentile of its annual range, indicating bullish bets have been accumulated over bearish at a faster-than-usual clip in recent weeks.
On a technical basis, the Dow component is sitting on a modest 4.7% year-to-date gain. However, the equity has made a solid run on the charts throughout the latter half of 2012, tacking on 18.4% since hitting an annual low of $59.07 on June 26. More recently, PG entered a brief period of consolidation after reaching a four-year high of $70.83 on Oct. 25, but the pullback was quickly contained by the stock's 50-week moving average.
In light of this technical showing, the rush toward out-of-the-money puts on Friday may simply be shareholders protecting their paper profits against another pullback. Now is an opportune time for these investors to pick up options-related insurance, with the stock's Schaeffer's Volatility Index (SVI) of 12% ranked lower than 82% of other such readings taken in the past year. In other words, PG's short-term option premiums are attractively priced at current levels.