Investors who are bullish on Proctor & Gamble can consider a long call option to express this view in PG stock.
At one point Wednesday, shares of Proctor & Gamble rallied as much as 3%. The stock also jumped past a 161.31 buy point after breaking out of a cup with handle. The move comes after the company posted strong fiscal third-quarter earnings in the premarket session. Net sales of $19.4 billion rose 7% from a year prior, while EPS of $1.33 beat analyst estimates of $1.29.
PG stock also shows the relative strength line approaching its highest level since the cup pattern began forming.
PG Stock: Using A Long Call To Take A Bullish View
An investor may consider buying the 165 call option in PG stock for the June 17 expiry. This call option has a delta of 43, which is equivalent to being long 43 shares of Proctor and Gamble on inception of this trade.
The 165 June call costs $3.20. So, this equates to a maximum loss of $320 on the trade. While the maximum loss is the debit paid, potential gains are uncapped.
This is appealing, as Proctor & Gamble is moving past its buy point now and has a lot of room to move before becoming overextended.
The 5% buy zone in PG stock runs from 161.31 to 169.38.
Implied Volatility Appears Cheap On Proctor & Gamble
A long call is sensitive to volatility.
The June 165 call option currently has an implied volatility of 16.5%. This appears to be cheap, considering that Proctor & Gamble has had a realized volatility of 22% over the last 30 trading days. While PG stock will likely realize slightly less volatility until the June expiry — as the company has just reported its earnings on Wednesday — volatility at its current levels is low simply given high market volatility and macroeconomic uncertainty.
Investors buying long calls in Proctor & Gamble can consider taking profits if shares become overextended, in the same manner as they would a long stock position. If not, they can hold until expiration. At that point, they will experience a profit if PG shares trade above $168.20 (which equates to the call price plus the premium paid).
Proctor & Gamble shows weaker top- and bottom-line growth in recent quarters vs. names in the IBD 50.
PG stock also sports a mediocre IBD Composite Rating of 79, according to IBD Stock Checkup. Yet PG ranks second in IBD's cosmetics and personal care group.
The stock may also have room for further appreciation in the event of a continued shift to defensive stocks from high-growth names.
