Procter & Gamble Options Traders Eye Record Highs By Tomorrow's Close

Procter & Gamble will report fiscal first-quarter earnings ahead of tomorrow's open

Oct 19, 2017 at 3:14 PM
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In the wake of its high-profile proxy battle with Nelson PeltzProcter & Gamble Co (NYSE:PG) will take its place in the earnings confessional bright and early tomorrow morning. Ahead of the event, the Dow stock is trading down 0.6% at $91.52 amid broad-market headwinds. Options traders, meanwhile, are blasting PG -- with more than 45,100 contracts traded, almost four times what's typically seen at this point in the session.

Most of today's action has occurred on the call side, with roughly 31,000 contracts on the tape. Roughly one-third of today's call volume has centered at the June 92.50 call, due to a large block that appears to be tied to stock. Pre-earnings options traders, meanwhile, are targeting the front-month series, with buy-to-open activity detected at the October 92.50 and 93.50 calls. If this is the case, the goal is for PG to topple the strikes by expiration at tomorrow night's close.

Today's bullish bias is nothing new for PG options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 12,527 calls and 9,003 put over the past 10 days. The resultant call/put volume ratio of 1.39 ranks in the 82nd annual percentile, meaning the rate of call buying relative to put buying has picked up the pace in recent weeks.

Echoing this is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.72. Not only does this show that call open interest outweighs put open interest among options set to expire in three months or less, but it ranks lower than 84% of all comparable readings taken in the past year, meaning short-term speculators are more call-skewed than usual.

Drilling down, peak open interest of 63,392 contracts is found at PG's out-of-the-money October 97.50 call. Data from Trade-Alert suggests most of these positions were bought to open in early August and mid-September, when Procter & Gamble stock was trading in the $91-$94 range. By doing so, traders expressed confidence the shares would topple $97.50 -- uncharted territory -- by October options expiration.

The closest the stock came to this mark was on Sept. 20, when it topped out at a record high of $94.67. The shares pulled back sharply after hitting this notable milestone, but found a foothold near $90 on Oct. 10 -- the date of the Peltz proxy vote -- home to PG's 160-day moving average and the stock's 2016 highs.

Historically speaking, PG's post-earnings odds are in options bulls' favor. Over the past eight quarters, the stock has closed higher in the session subsequent to the company's earnings report six times. On average, the shares have moved 2% regardless of direction, with the options market pricing in a bigger move of 3.1% this time around.

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