Bulls Clean Up with Consumer Giant: Options Recap

Bull in ring

Someone’s cleaning up as consumer staples defy the market selloff.

Just look at Procter & Gamble (PG), whose brands include Tide laundry detergent, Bounty paper towels and Dawn dish-washing liquid. It’s one of the best-performing members of the Dow Jones Industrial Average and S&P 500 in the last month, supported by a strong earnings report on October 19.

It appears that a large options trader has profited from the rally and is now looking for the move to continue through the spring. Here’s a breakdown of yesterday’s big trade:

  • A block of 20,000 January 77.50 calls was sold for $12.50.
  • A matching number of April 95 calls was bought for $1.95.

Volume was below open interest in the Januarys but not the Aprils, which suggests a long position was rolled higher in price and forward in time. Making the adjustment lets the trader recover $10.55 of their capital. He or she also has an additional three months to profit from further upside.

It works because calls fix the price where a security can be purchased. Their cheap upfront cost helps investors manage risk and generate leverage. (See our Knowledge Center.)

PG rose 0.16 percent to $88.24 yesterday. Price hikes for Pampers and strong demand for Olay beauty products drove its last profit beat. Some traders might worry about a near-term pullback because it’s near the top of its longer-term range. Rolling the calls out in time could protect against a near-term drop because it also reduced their delta.

Overall options volume was triple the monthly volume on Monday, with calls outnumbering puts by a bullish 7-to-1 ratio.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.