Hair is Bad! Smells are Bad! Synthetic Tonics Good! (PG, ADP)

Today’s initiative is a remarkably wallet-friendly bet on Proctor & Gamble (NYSE:PG), world leaders in the beauty and grooming space.

Have you been groomed?

But before we get there, we have one trade to report on.

It was our November 29^th trade from Serf! You Are Nothing But a Data Point to Be Processed!, wherein we urged you to sell the ADP December 31^st 225/230 CALL spread for a credit of $1.60 and buy the ADP December 31^st 235/215 PUT spread for $8.55.  Total debit was $6.95.

The trade closed last Friday eve, and we’re now on the hook for a full $11.95.

So we’re acting thus –

We’re setting the ADP May 20^th 230 synthetic short* for a credit of $15.30 (23.50/8.20).  That will flip our debit to a credit of $3.35 and allow us participation in the coming downside.

[*Sell the CALL and buy the PUT.]

Best of British Luck!

And now we get beautiful…

Of all the lies we’ve been led to believe, perhaps none is so insidious as the ‘personal hygiene’ deception.

Not that we’re against soap and water.

But all the smells and chemicals and synthetic detergents and treatments we submit to in the name of the “civilizing” urge, are not only gratuitous – they’re actually killing us.

Mr. Ripley Made it All Possible

P&G lives that lie daily, to the tune of a $393 million market cap.

But we’ve a hunch that number will be shrinking in the near term.

Consider the fundamentals –

• P/E is a bloated 29.89,
• Dividend Yield is 2.13%,
• Price to Book is a wicked 8.78 (!) – makes no sense…
• While insiders sold 32.17% of their holdings in the last half year, for an Old Spice grand total of $110 million!

Remember, this is just a manufacturer of retail stuff.

Now look at the chart –

On the technical front, we have the following –

1. An overbought RSI read from mid-December (in green) that triggered negative divergence against price – an indication that bulls are losing their mojo.
2. MACD turning lower,
3. A quick-tightening rising wedge (in red), that was capped…
4. Last Friday by a bearish engulfing pattern at the top (enlarged, in black).
5. A gap that needs filling was left behind at 141 (in blue).

But we don’t need such a steep decline to cash in wildly from this one.

Not even close.

Check it out –

A Jew and His Money recommends you consider selling the PG March 18^th 160/165 CALL spread* for a credit of $2.55 (6.55/4.00) and buying the PG March 18^th 165/160 PUT spread** for $2.50 (6.10/3.60).  Total credit on the trade is a nickel.

[*Sell the 160 CALL and buy the 165 CALL.  **Buy the 165 PUT and sell the 160 PUT.]

Rationale: because of the formidable spreads on the March options, we’re paid (a nickel) to put on the trade, and that’s always a nice touch.

That gives us a maximum gain of $5.05 on zero outlay.  Adjusted for basic commissions, the trade offers a gargantuan 3267% take.

Maximum loss is $4.95 (difference between the PUT strikes less the initial credit).

Our breakeven on the trade arrives at $162.45, just 0.7% lower than current price levels.

And that’s outright awesome.

If we’ve got the direction right.

And we think we do.

May the Lord, G-d of Israel grant us chein in abundance.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew