The Procter & Gamble Co. (PG)

Update 4/22/2022: I exited the long calls remaining in my bear call spread on PG, two days after exiting the in-the-money puts to avoid assignment when the stock went ex-dividend. I shall give the info for the long calls exit, and then put the long and short calls back together as results for the full bear call spread.

First, the long calls.

The entry price for the long calls was a $2.62 credit per contract/share, and I exited for a $0.88 debit per contract share, a profit of $174 for each contract. Shares rose by $5.42 above entry to $162.82.

The implied volatility ratio stood at 3.79%, down 14.2 points from entry

Shares rose by 3.4% over 3 days for a +419% annual rate. The options position produced a 197.7% profit for a +24,057% annual rate.

And now, the full bear all vertical spread.

The entry price for the vertical spread was a $4.92 credit per contract/share, and I exited for a $5.78 debit per contract share, a loss of $86.00 for each contract. Shares rose by $5.42 above entry to $162.82.

The implied volatility ratio stood at 3.79%, down 14.2 points from entry

Shares rose by 3.4% over 3 days for a +419% annual rate. The options position produced a 14.9% loss for a -1,810% annual rate.

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Update 4/20/2022: PG rose after earnings were published before the opening bell, pushing the short call strike in my bear call spread into the money. PG goes ex-dividend the day after the earnings announcement, and I sold the short call portion of my vertical spread to avoid the chance of assignment. I retain the long call options, which will profit if the price continues to rise.

Long calls lose value through time decay, and so my incentive is to exit what remains of the trade as soon as soon as it shows a profit.

I shall update this analysis with results for the entire bear call spread after exiting the long calls that remain.

Short call results:

The entry price for the short calls was a $2.30 credit per contract/share, and I exited for a $4.90 debit per contract share, a loss of $260 for each contract. Shares rose by $6.19 above entry to $163.59.

The implied volatility ratio stood at 22.6%, down 29.5 points from entry

Shares rose by 3.9% over one day for a +1,436% annual rate. The options position produced a 53.1% loss for a -19,367% annual rate.

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I have entered a short bear call spread on PG, using options that trade for the last time 31 days hence, on May 20. The premium is a $1.42 credit per contract share and the stock at the time of entry was priced at $157.40.

The Implied Volatility Ratio stood at 52.1%.

Premium:	$1.42	Expire OTM
PG-bear call spread	Strike	Odds	Delta
Calls
Long	165.00	84.0%	19
Break-even	161.42	74.5%	28.5
Short	160.00	65.0%	38

The premium is 56.8% of the width of the position’s short/long spread. The profit zone covers a 2.6% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 2.5:1, with maximum risk of $358 and maximum reward of $142 per contract.

How I chose the trade. The trade was placed to coincide with PG’s earnings announcement, after the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $3.30 either way, based on options pricing, which gives a price range of $154.10 to $160.70.

By Tim Bovee, Portland, Oregon, April 19, 2022

Disclaimer

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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Based on a work at www.timbovee.com.