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Agrium Inc. (USA) (NYSE:AGU) Traders Bet On a Breach of Support

AGU's April 95 put saw buy-to-open activity on Tuesday

by 3/20/2013 10:52 AM
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Agricultural chemical concern Agrium Inc. (USA) (NYSE:AGU - 100.54) has struggled on the charts since hitting a record high of $115.31 in late January, with the shares down around 13%. One group of option players on Tuesday bet on some additional technical hurdles, and roughly half of the day's volume centered on the stock's April 95 put. Of the 3,085 contracts that changed hands here, 79% crossed at the ask price, implied volatility finished 2.7 percentage points higher, and open interest added 2,928 positions overnight. Summing it all up, it appears that new bearish positions were initiated yesterday.

By buying the out-of-the-money puts to open, traders expect AGU to fall below the $95 mark by the close on Friday, April 19, when front-month options expire. More specifically, the volume-weighted average price (VWAP) for the puts was $1.08, making breakeven $93.92 (strike less VWAP), or 6.6% below current levels. The options market doesn't appear too optimistic the position will land in the money by expiration, though, as delta for the put is sitting at negative 0.22, or 22%.

Widening the sentiment scope reveals that option players have been rather bearish toward AGU in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.86 ranks higher than 76% of other such readings taken in the past year. In other words, puts have been bought to open over calls at a healthier-than-usual clip during the last two weeks.

As touched upon, though, AGU has had a tough go of things technically. In addition to the aforementioned pullback, the equity has lagged the broader S&P 500 Index (SPX) by more than 10 percentage points over the past 40 sessions. This downward trajectory has AGU on pace to finish the week south of its 40-week moving average for the first time since early June. However, the equity is still maintaining its foothold atop the round-number century mark, a layer that has served as support throughout 2013.

Fundamentally, the company is locked in a proxy battle with U.S. hedge fund Jana Partners, and the news could continue to make headlines ahead of Agrium's shareholder meeting, scheduled for April 9.

In today's session, AGU is down 0.4% to hover near $100.54.


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