After a sell off on Thursday, several of the Agricultural Stocks that I follow are moving higher today and staging a late day rally. To name a few: Agrium, CF Industries, and Potash are all up around 3+% on a down day across the major U.S. stock indexes.
Here is a brief bio on our focus today:
Potash Corp. of Saskatchewan, Inc. produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. The company mines and produces potash, which is used as fertilizer. It also offers solid and liquid phosphate fertilizers; animal feed supplements; and industrial acids that are used in food products and industrial processes. In addition, the company produces nitrogen fertilizers, as well as nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate, and nitric acid. Further, it holds the right to mine 785,759 acres of land in Saskatchewan; and 58,263 acres of land in New Brunswick in Canada. The company sells its fertilizers primarily to retailers, dealers, co-operatives, distributors, and other fertilizer producers; industrial products primarily to chemical product manufacturers; and purified phosphoric acid directly to consumers of the product Potash Corp. of Saskatchewan, Inc. was founded in 1953 and is based in Saskatoon, Canada. (source YahooFinance http://finance.yahoo.com/q/pr?s=POT+Profile )
Options Trade#1: Potash is rallying close to 45 a share this afternoon. I like the Pot 43.33 Jan 21 Calls at around 1.50 a contract. 10 contracts can be purchased for $1,500 plus trading fees and gets us long exposure on 1000 shares at a strike of 43.33. Keep in mind this is a quick trade and contracts expire next Friday. If the stock breaks through 45, it may run to 47-48 next week. Clearly if the stock goes to 47 by Friday, this trade will make us a few thousand dollars profit less trading fees. A more conservative trade would be buying the Feb or Mar Pot calls on a slight pullback in the stock after todays rally.
Options Trade#2: To help finance Options Trade#1, in this trade I like selling the Pot 45 Jan 21 Put for around $1.25. If we sell 4 contracts, we will collect a $500 premium that will be credited to our account. It’s very important to remember, that to execute this trade we will need $18,000 in cash as collateral in our brokerage account in case we get exercised the shares at expiration. If the stock expires next friday above $45 a share, we will not get exercised and keep the premium gained by selling the Puts.
Keep an eye on these agricultural chemical stocks and I think they will be trending higher over the next few months. Ag stocks are due for a nice rally in 2012 and we could see an 8-10% move to the upside over the next few months. After all, everyone needs to eat to be healthy. Global food consumption will only increase with the continued growth of the world’s population and increased demand for more food…this means more chemicals sold for farming these crops! Till next time.
Chart Source: Fidelity Investments