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Pre-Earnings Bulls Eye Potash Corp./Saskatchewan (USA) (POT)

Potash Corp./Saskatchewan (USA) calls outstrip puts today

by 7/16/2014 2:49 PM
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Potash Corp./Saskatchewan (USA) (NYSE:POT) call volume is tripling put volume this afternoon, which is a bit unusual. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the fertilizer and feed producer has racked up a put/call volume ratio of 1.92, with long puts nearly doubling long calls. Also, this ratio sits just 2 percentage points from an annual acme, suggesting traders have picked up bearish bets over bullish at a near-extreme pace of late.

As mentioned earlier, however, that's not been the case today. In fact, POT's most active option this afternoon is the weekly 7/25 36-strike call, where nearly 4,900 contracts are on the tape. These positions are likely being bought to open, as speculators gamble on a modest advance by the end of next week, when the weekly contracts expire.

By buying the near-the-money calls to open at a volume-weighted average price (VWAP) of $0.50, the traders anticipate POT -- currently perched at $35.92 -- will finish above $36.50 (strike plus VWAP) at expiration. Additional gains will mount north of breakeven, while the most the traders stand to lose is the initial cash outlay, should the shares close below the strike seven sessions from now.

With POT scheduled to report earnings next Thursday morning, though, these short-term bullish bets could be risky business. The company has posted a lower-than-expected per-share profit in six of the last eight quarters, and averaged a 0.2% loss in the subsequent session over the same time frame.

Elsewhere, Potash Corp./Saskatchewan (USA) (NYSE:POT) received a mixed pair of brokerage notes this morning. While TD Securities reduced its rating to "hold" from "buy," CIBC lifted its price target on the stock to $38 from $35, and reaffirmed its "sector performer" opinion.


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