Procter & Gamble (PG) options action bets on limited downside


Shutterstock photo

Without any notable news in Procter & Gamble Co. (NYSE: PG ) on Tuesday, an investor boosted put volume during morning trading on a bet that the stock will experience limited downside and volatility during the near term will come in. The August 60 puts were active early on Tuesday, and investors looking to buy these options have ample supply.

At 9:50 a.m. EST, more than 10,000 out-of-the-money (OTM) August 60 puts crossed the tape for an average price of 74 cents per contract, which was right at the bid price at the time of the trades. These OTM puts are home to current open interest of 3,800 contracts. The options action suggests an investor collected 74 cents per contract to open short put positions. The put sellers will make money if PG shares are trading higher than $59.26 at August options expiration. Maximum gain on this put sale is the credit collected per contract, while maximum risk is significant but limited to $59.26 in the event that PG shares are trading at zero when the options expire. This short put position is a moderately, not exceedingly, bullish play because it allows for a potential 5% decline in the stock before investors lose money. A closer look at time and sales shows the investor tied a short stock position to this put action. At the same time of the put action, the investor sold 263,900 shares of stock for $62.47 per share, which turns this directional play into a volatility bet. A credit of 74 cents per put option with the stock trading at $62.47 equates to an implied volatility of 20% compared to the stock's 30-day historical volatility of 17%. While the options action suggests the investor expects limited downside, it is more likely that the investor is betting that implied volatility will decline during the near term.

PG shares gained nearly 1%, or 54 cents, to $62.63 during morning trading. The stock has been trading between $60 and $65 since November 2009, reaching a 52-week high of roughly $64.50 in March.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Options
Referenced Stocks: PG

More from Karla Yeh


Karla Yeh

Karla Yeh

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by