3 Reasons We Punted on Recommending Procter & Gamble Call Options

Initially, PG call options looked attractive, but a few data points suggested the trade could backfire

Josh Selway
Apr 11, 2017 at 2:27 PM
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Considering all the different ways you can profit from an options trade, our traders have plenty of opportunities each day. However, while some ideas seem solid initially, a closer look at a stock or other type of security may suggest the risks outweigh the rewards. For example, Schaeffer's Senior Equity Analyst Joe Bell, CMT, recently highlighted his decision to pass on buying Procter & Gamble Co (NYSE:PG) call options back on March 28. Here are some things that stood out to Bell about PG stock.

What He Liked About Procter & Gamble Calls

Bell liked PG stock for a number of reasons:

  1. PG shares were trading above the round $90 level, the site of their October highs. This level acted as support during an early March pullback, suggesting former highs were acting as a foothold. 
  2. Moreover, the stock originally eclipsed the $90 mark thanks to a mid-February report that Trian Fund Management took a position in Procter & Gamble. 
  3. The shares then entered a tight trading range, with the bottom at $90 and the top at $92. Given the stock's long-term uptrend and year-to-date outperformance, this trading pattern could've been considered a bullish continuation pattern. 
  4. Yet, of the 15 analysts covering the shares, more than half gave just a "hold" rating, leaving room for upgrades. 
  5. There was also a big 24% increase in short interest in the most recent two-week reporting period, despite the stock's strong price action. Based on average daily volumes, it would have taken these bears almost six sessions to cover. 
  6. On March 27, PG formed a doji candlestick at the $90 level, confirming the bullish pattern as it closed higher the following day. 

What He Didn't Like About Procter & Gamble Calls

However, there were three key reasons Bell passed on PG calls: 

  1. PG's 20-day moving average had been trending higher since mid-January, but started to roll over. 
  2. The stock's MACD turned negative on March 2, and was still negative and trending lower. 
  3. Option activity was rather bullish and there was significant call activity at overhead strikes, presenting possible speed bumps for a potential rally. 

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