Monday, January 25, 2016

PG Analysis

Update 3/19/2016: The put options in my PG iron condor have expired without value.

Overall, shares rose by 8.3# over 54 days, or a +56% annual rate. The options position produced a 40.5% loss on debit for a -274% annual rate.

Update 3/15/2016: I exited the call portion of the iron condor for a $1.26 debit. The remaining bull put spread will expire without value at the end of the week, and I shall calculate the position's loss then.

The packaged products company, Procter & Gamble Corp. (PG), headquartered in Cincinnati, Ohio and producing lines of beauty, grooming, fabric care and other household products, publishes earnings on Tuesday before the opening bell.

[PG in Wikipedia]


I shall use the MAR series of options, which trades for the last time 53 days hence, on March 18.


Implied volatility stands at 25%, which is 1.1 times the VIX, a measure of volatility of the S&P 500 index. PG’s volatility stands in the 86th percentile of its most recent range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

PG completed an 8-month downtrend on Aug. 24, 2015, bouncing to the upside for a significant retracement of the loss that peaked on Dec. 16, 2015. The price has since declined a bit but remains well above the December low.

The analytical trend -- the change over time in analyst opinion -- suggests the possibility of a negative earnings surprise. Analysts in aggregate give PG a negative 35% enthusiasm index, with 30% of 20 analysts covering the stock making a strong buy recommendation.

Two of the last four earnings announcement have been followed by a price rise the next trading session.

Iron condor, short the $80 calls and long the $82.50 calls,
short the $70 puts and long the $67.50 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money

The premium is $0.75, which is 0.30% of the width of the position’s wings. The stock at the time of entry was priced at $76.78.

The risk/reward ratio is 2.3:1.

The zone of profit in the proposed trade covers a $10 move either way. The biggest immediate move after each of the past four earnings announcements was $2.36, and the average was $1.90. After eliminating the maximum and minimum post-earnings movements, the core tendency is $2.19.

Decision for My Account

 I have opened a position on PG as described above.

-- Tim Bovee, Portland, Oregon, Jan. 25, 2016


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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