Procter & Gamble (NYSE: PG) is a consumer goods giant and one of the biggest companies in the world. Their products include a number of well-recognized names, as the company is active in more than 180 countries and owns around seventy brands.
Consumer goods producers have always been viewed as a safe choice when it comes to investing in the stock market. When some assets become too risky, a way to balance the safety of your portfolio is to redirect investment back to these so-called “defensive stocks”. This is a well-known strategy for rebalancing a portfolio.
This strategy could not be more relevant today, with the current volatility we see almost daily in equity markets. Another example of this volatility was the S&P500, which dropped heavily at the end of August – a highly unexpected move. This had P&G’s investors looking to diversify the portfolio into more “stable” companies and sectors. While biotech offered strong returns, the last period back to safety showed outflows from these sectors, which consumer goods companies may profit from.
Monetary policy plays an important role as this is a US company, with the strength of the US dollar posing many problems. In this regard, today’s FOMC (Federal Open Market Committee) minutes are supposed to reveal what the Fed members discussed at the September gathering. This should offer more clues about the future direction of the US dollar, thereby helping us work out a strategy for P&G.
Looking at the company’s share price we see that the spike higher above the $90/share level has been followed by a dip lower, almost as aggressive as the previous higher move. This is the very first sign of a reversal pattern, called, ironically a “head and shoulders” pattern.
The thing is, that pattern has actually been completed and broken lower, but the neckline is retested most of the time. This retest should come around the $77/share level, and this opens the case for both a call and a put option to be traded.
The call option should be set up from the current $73/share price and end with an October expiration date. The put option should be traded by the time market goes into the $77-$78 levels, and a one-month expiration can be used for that too.
If I were to compare the two options from a risk point of view, as a strategy I would say the one to the upside is risky. Therefore, the amount invested for the call option should be smaller than the amount invested for the put option to minimize risk.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
