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Rallying Monsanto Company (MON) Hit By Option Skeptics

Monsanto Company is surging, following a well-received earnings report

by 6/25/2014 11:31 AM
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Monsanto Company (NYSE:MON) has jumped 5.5% to trade at $127.20 this morning, after the agricultural firm earlier posted a fiscal third-quarter earnings beat and raised its full-year outlook. Additionally, the shares hit a fresh six-year high of $128.79 out of the gate. Not surprisingly, in the options pits, call volume has swelled to 22 times the intraday average, with roughly 26,000 contracts on the tape. However, not all of these call traders are of the typical bullish variety.

While the most active option is MON's January 2015 115-strike call, which saw a 10,000-contract block cross just minutes ago, it appears to be tied to stock. Looking elsewhere reveals call writing is occurring at MON's out-of-the-money July 130 call, where nearly 3,200 contracts have changed hands. By selling these calls to open, the traders believe the rallying shares have little fuel left in the tank, and will churn south of the strike through front-month options expiration at the close on Friday, July 18. If this happens, the sellers will retain the initial credit received as their maximum potential reward; however, if the stock surges north of $130 in the next few weeks, the traders could be assigned.

Taking a step back, call writing has been a popular strategy among Monsanto Company (NYSE:MON) traders. During the last 50 days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 13,145 MON calls have been sold to open, versus 8,883 bought to open.


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