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Monsanto Bulls Place Well-Timed Bets

MON fans scooped up October 90 calls

by 9/19/2012 8:35 AM
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Options players are waxing optimistic on Monsanto Company (NYSE:MON - 89.06), which has spent the past few weeks battling familiar round-number resistance. By Tuesday's closing bell, the agricultural issue had seen close to 6,500 calls cross the tape, more than doubling its average single-session call volume. For comparison, fewer than 3,700 MON puts were exchanged.

More than half of the call volume transpired at the October 90 strike, which saw 3,651 contracts change hands. Seventy-nine percent of the soon-to-be front-month calls traded at the ask price, and call open interest at the round-number strike ballooned by about 2,500 contracts overnight, pointing to buy-to-open activity.

By purchasing the calls to open, the investors are expecting MON to muscle atop the $90 level -- which has acted as resistance for the better part of four years -- within the next month. More specifically, the volume-weighted average price of the calls was $1.65, meaning the buyers will profit if MON topples the $91.65 level (strike plus premium paid) within the calls' lifetime.

From a broader sentiment perspective, short-term options traders were already bullishly biased toward MON. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at 0.74, indicating that calls outnumber puts among options expiring within three months. Plus, this ratio ranks in the 24th percentile of its annual range, implying that near-term traders are more call-heavy than usual at the moment.

Technically speaking, the aforementioned 90-strike call buyers could get lucky this morning, thanks to some upbeat analyst attention. Ahead of the bell, the shares are pointed nearly 2% higher, and could find their way into annual-high territory, after Goldman Sachs reportedly upgraded the equity to "conviction buy" from "buy." From a longer-term standpoint, MON has advanced 31.5% in 2012, with the most recent leg of its uptrend underscored by support from its 10-week moving average.


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