Procter & Gamble Co (PG) Banks a Tidy Profit, While Option Traders Pay Up

Procter & Gamble Co (NYSE:PG) is selling its beauty products business to Coty Inc (NYSE:COTY) for $12.5 billion

Jul 9, 2015 at 12:13 PM
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Ending several weeks of speculation, Procter & Gamble Co (NYSE:PG) confirmed that it is selling the majority of its beauty products business to Coty Inc (NYSE:COTY) for $12.5 billion. The complex deal -- which will involve a spin-off of several brands -- represents the single-largest divestiture on record for the blue chip. The news has given PG a 0.4% boost today to trade at $81.26. (COTY, meanwhile, is staring at steep losses at midday.)

Today's modest gain marks a change of pace for PG's recent technical trajectory. Since topping out at a record high of $93.89 on Dec. 24, the stock has shed 13.5%. More recently, the equity has been staring up at its 120-week moving average since late April -- a trendline that appears to be containing today's upturn.

Option traders have kept the faith, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PG's 50-day call/put volume ratio of 1.24 ranks in the 75th annual percentile. In other words, calls have been bought to open over puts at an accelerated clip in recent weeks.

Drilling down on short-term options, speculators have initiated new positions at PG's weekly 7/10 81.50-strike, weekly 7/31 79-strike, and August 82.50 calls during the past two weeks. For those purchasing new positions, the goal is for the stock to be sitting north of the strikes at the respective expiration dates.

Regardless, the most any option buyer stands to lose is the initial premium paid; however, PG's near-term options are pricing in relatively lofty volatility expectations at the moment. Specifically, Procter & Gamble Co's (NYSE:PG) Schaeffer's Volatility Index (SVI) of 16% sits higher than 78% of all similar readings taken in the past year. Even more telling -- the security's 30-day at-the-money implied volatility of 17% arrives in the 97th percentile of its annual range.
 

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