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Mosaic Calls Pick Up Steam

Can MOS topple its 200-day moving average?

by 6/27/2012 9:49 AM
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The shares of Mosaic Co (NYSE:MOS - 53.31) gapped higher yesterday, thanks to a favorable corn-production forecast from the U.S. Department of Agriculture. However, the equity is now face-to-face with its 200-day moving average, which has acted as a technical barrier for the past year. Against this backdrop, it appears options traders are selling calls to either bet on resistance for the security, or to pocket some cash while their MOS shares face a few short-term speed bumps on the charts.

During the course of yesterday's session, MOS saw roughly 29,000 calls change hands -- about three times its average daily call volume, and nearly twice the number of MOS puts traded. Speculators initiated new positions at the out-of-the-money July 55 call and August 57.50 call, which saw open interest increase by 3,450 contracts and 2,269 contracts overnight, respectively. However, as alluded to earlier, the bulk of the calls traded at the bid price, pointing to sell-to-open activity.

Assuming the option sellers aren't MOS shareholders, their primary goal is for MOS to remain south of the call strikes throughout the options' lifetime. In this best-case scenario, the contracts will expire worthless and the traders can pocket the entire premium received from the sale. If the sellers are writing covered calls, they also want the contracts to expire worthless; however, their longer-term outlook for MOS remains bullish, since they're shareholders. As such, should the stock surmount the strike within the calls' lifetime, the covered call writers would miss out on additional portfolio gains, since they'd have to deliver MOS shares at the call strike -- a discount to what they'd get on the Street.

From a sentiment perspective, the aforementioned call writers aren't the only group gambling on near-term headwinds for MOS. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.51 ranks in the 90th annual percentile, implying that short-term options players have rarely been more put-skewed toward MOS during the past year.

Likewise, short interest on the equity skyrocketed 52.6% during the past month, and now represents about three sessions' worth of pent-up buying demand, at MOS' average daily trading volume.

Daily Chart of MOS since May 2011 With 200-Day Moving Average


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