Reignited M&A Chatter Sparks Monsanto Company (MON) Options Frenzy

Reports that Monsanto Company (NYSE:MON) is attempting to purchase chemical giant Syngenta AG (ADR) (NYSE:SYT) has traders buying May calls

by Griffin Kruse

Published on May 1, 2015 at 2:12 PM
Updated on May 1, 2015 at 2:12 PM

The shares of Monsanto Company (NYSE:MON) are 2.7% higher at $117.06, after Bloomberg reported that the company is still pursuing chemical producer Syngenta AG (ADR) (NYSE:SYT) nearly a year after its first M&A attempt fell through. Longer term, the shares of MON have spent the past few months dawdling between support at $115 and resistance in the $120-$125 neighborhood. However, today's news has drawn the attention of options bulls, with some traders gambling on short-term upside for the equity. 

Drilling down, calls are trading at about three times their average intraday pace. Buy-to-open activity has been detected at the May 120 call, which is the day's most active call contract. By purchasing this option at a volume-weighted average price (VWAP) of $0.53, traders expect the security to muscle north of $120.53 (strike plus VWAP) by the close on May 15, when the contract expires. The last time the shares closed above this level was on March 2, at $121.30. 

Prior to today, puts have been the clear-cut options of choice among buyers. Specifically, MON's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 2.24 is in the 96th percentile of its annual range. Mirroring this indicator is the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.72, which is the highest equivalent reading taken from the past year. Simply stated, near-term speculators have never been this put-skewed on MON over the last 12 months. 

Looking to the brokerage bunch, Monsanto Company (NYSE:MON) has been a favorite of the Street. Seventy-one percent of covering analysts rate MON a "strong buy," with no "sell" or worse recommendations to be found. Furthermore, MON's average 12-month price target of $134.75 stands at a healthy 13.1% premium to current trading levels, and in territory not charted since mid-2008. 

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