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Monsanto Attracts Pre-Earnings Option Bulls

MON speculators are scooping up calls at an accelerated clip

by 10/2/2012 10:17 AM
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Options traders are picking up calls on Monsanto Company (NYSE:MON - 90.22), which saw around 11,000 of these typically bullish bets change hands yesterday -- more than double its average single-session call volume. For comparison, the agricultural issue saw fewer than 3,400 puts cross the tape.

Most popular was the out-of-the-money November 92.50 call, which saw more than 2,800 contracts traded. Nearly all of the volume translated into new open interest, confirming that traders initiated fresh positions here yesterday. However, the bulk of the calls crossed between the bid and ask prices, making it difficult to discern whether they were bought or sold.

If recent history is any indicator, though, the traders were likely purchasing the calls. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MON sports a 50-day call/put volume ratio of 1.64, which stands higher than 74% of all other readings of the past year. In other words, option buyers have scooped up MON calls over puts at a faster-than-usual clip in recent weeks.

As a result, the stock's Schaeffer's put/call open interest ratio rests at 0.67, indicating that calls comfortably outnumber puts among options expiring within three months. Plus, this ratio stands just four percentage points from a 52-week nadir, implying that near-term options players have rarely been more call-heavy during the past year.

Echoing that optimism, MON boasts 12 "strong buy" endorsements from analysts. On the other hand, just five brokerage firms have doled out middling "hold" recommendations, while only one analyst deems the stock a "sell" or worse.

On the charts, the shares of MON have muscled about 29% higher in 2012, with the most recent leg of their uptrend supported by their 10-week moving average. Since tagging a multi-year peak of $91.95 less than two weeks ago, MON has taken a bit of a breather, but could resume its quest for new highs in the event of a stellar earnings showing. Specifically, the company is slated to unveil its quarterly figures before the opening bell tomorrow. According to Thomson Reuters, Monsanto has bested the Street's bottom-line earnings estimates in each of the past four quarters.

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