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Mosaic Bulls Bet on Extended Upside

Call volume picks up steam on MOS

by 11/21/2012 9:35 AM
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Bullish traders took a shine to Mosaic Co (NYSE:MOS - 52.06) on Tuesday, which was up 2.3% by the time the closing bell rang. Roughly 35,000 calls changed hands during the course of the session, which was about seven times the equity's average daily call volume. By comparison, just over 8,800 puts were traded. These optimistic speculators may have been enticed by the fact that the security's short-term options are relatively cheap right now, as reflected by MOS' Schaeffer's Volatility Index (SVI) of 24%, which hovers just seven percentage points above a yearly low.

Yesterday's option of choice was the December 55 strike, where more than 10,300 calls were exchanged -- the majority of them at the ask price, suggesting they were bought. These out-of-the-money contracts crossed at a volume-weighted average price (VWAP) of $0.63 each. This strike saw an overnight rise in open interest of 1,814 calls, pointing to the initiation of new bullish bets. By purchasing these contracts to open, traders are expecting the stock to muscle north of $55.63 (strike price plus VWAP) by the time December options expire.

Also garnering notable attention was the weekly 52.50 strike, which saw nearly 5,100 calls change hands at a VWAP of $0.30 per contract. The bulk of these options traded at the ask price, as well, signaling buyer-fueled activity. Open interest swelled at this strike overnight, again implying that new positions were added here. In order for speculators to realize a profit on these bought-to-open weekly contracts, the equity will need to climb above $52.80 by expiration this Friday.

This uptick in call volume is nothing new for the equity. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 20-day call/put volume ratio of 2.35 for MOS. In other words, calls bought to open have more than doubled puts during the past month. In a similarly bullish vein, the stock's Schaeffer's put/call open interest ratio (SOIR) sits at 0.82, confirming calls outpace puts among options expiring in three months or less. This ratio arrives in the 32nd annual percentile, meaning near-term traders are more call-heavy toward the security than usual.

Most of the analysts covering the agricultural chemical concern seem to share this upbeat attitude toward MOS. The equity boasts 12 "strong buy" endorsements, compared to seven "holds," and not a single "sell" recommendation. Even more telling, the stock's average 12-month price target of $61.94 represents expected upside of about 18.3% to Tuesday's closing price of $52.35.

From a technical standpoint, the shares are up about 4% year-to-date, but have trailed the broader S&P 500 Index (SPX) by nearly eight percentage points over the past two months. Still, yesterday's aforementioned rise pushed the stock atop its 20-day moving average for the first time on a daily closing basis since late September. A continued trek higher could result in a profit for Tuesday's weekly bulls, as well as the December call players.


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