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Potash Corp./Saskatchewan (USA) (NYSE:POT) is sitting 2.8% higher at $30.70 this afternoon, and call activity is ramping up among POT options traders. So far today, 32,000 calls -- a 35% mark-up from the average intraday norm -- have been exchanged, compared to just 7,418 puts.
Attracting the most attention has been the September 32 call, where roughly 8,850 contracts have changed hands for a volume-weighted average price (VWAP) of $0.73. The majority of these contracts -- including a block of 1,000 -- went off at the ask price, insinuating they were purchased. What's more, implied volatility at this strike has increased 1.4 percentage points, which -- along with data from the International Securities Exchange (ISE) -- suggests some buy-to-open activity.
Technically, in the last month alone, POT has tumbled 17.3%, and has underperformed the broader S&P 500 Index (SPX) by more than 20 percentage points. Most of that came in the form of a bear gap in late July, on news that Russian potash producer Uralkali was cutting ties with Belarusian Potash Co., breaking up a global pricing cartel. Today, however, Uralkali CEO Vladislav Baumgertner was reportedly arrested in Belarus on criminal charges, sending potash producers higher. (Others attribute the spike to reports Uralkali is considering the purchase of potash distributors to boost sales.)
Today's call buyers expect the stock to tack on at least 7.4% to finish north of the breakeven price of $32.73 (strike price plus the VWAP) by the close on Sept. 20, when front-month options expire. Should POT fail to topple the 32 strike upon expiration, the most the call buyers stand to lose is the initial premium paid.
Of note, short interest on POT grew a brow-raising 87.7% during the last two reporting periods, bringing the percentage of shares sold short to a healthy 3.2% of the stock's available float. Given its dismal technical backdrop, it is possible that some of POT's call buyers of late are actually short sellers hedging their bearish bets in light of today's pop higher.