Cincinnati-based consumer goods guru The Procter & Gamble
) will release its fourth-quarter report ahead of the open on
Monday, Aug. 3. Analysts are looking for a profit of 73 cents per
share for PG. The company has an outstanding track record in the
earnings confessional, beating the consensus estimate in each of
its last four quarterly reports.
Ahead of PG's earnings report, however, option players are not
too optimistic. In the past two weeks, speculators on the
International Securities Exchange (ISE)/Chicago Board Options
) have bought to open 2.7 puts for every call. This ratio of puts
relative to calls represents an annual high, revealing that
speculators on the ISE/CBOE have
initiated bearish bets faster during the past year.
In the same bearish vein, short interest jumped 8.8% during the
past two weeks. However, these bearish bets account for a scant
1.1% of PG's available float, suggesting that there is ample room
for pessimism to grow.
Technically speaking, option players have reason to be skeptical
of PG. The stock has added just 1.7% in 2010, which is no surprise,
given that PG has followed a horizontal pattern of movement since
November 2009. During this time, the equity has been range-bound in
the $60-to-$64 neighborhood, with the upper rail of this range
serving as staunch technical resistance.
Interestingly enough, it seems that one put player is counting
on PG to soon slip beneath the lower rail of its trading range.
Early this morning, 3,500 August 60 puts traded at the ask price,
revealing they were likely purchased. With open interest at this
strike exceeding today's volume, however, we cannot yet confirm
whether these puts were, in fact, purchased to open.
If this trader did, indeed, buy to open these August 60 puts,
then he is either bearish and hoping that PG will sink beneath the
$60 level in the near term, or he's an anxious shareholder who is
guarding his stock in the event of an unexpected pullback. With
earnings just over the horizon, either of these scenarios is
In light of PG's gold-star performance in past earnings reports,
analysts may be expecting another blowout report. In fact, the
brokerage bunch is very optimistic about PG, with
reporting that 16 of the 23 analysts following the company call it
a "buy" or better. Similarly, the stock's 12-month price target is
pegged at a lofty $70.24 -- territory not explored by PG since
With the brokerage bunch having lofty expectations for PG, the
stock may need to hit it out of the park in order to satisfy this
group's outlook. Should PG only hit a single, price-target cuts
could indeed break the stock free from its trading range -- pushing
the shares beneath round-number support at $60.
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