Call Buying Picks Up as Mosaic Co (MOS) Pops

Mosaic Co (NYSE:MOS) is higher today, after the fertilizer firm said it will idle a potash mine

Jul 13, 2016 at 3:19 PM
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Shares of Mosaic Co (NYSE:MOS) are up 3.1% at $27.34, after the fertilizer firm said it will idle its Saskatchewan potash mine for the remainder of the year -- and temporarily lay off hundreds of workers -- amid "lower global potash demand and market prices." This is helping to overshadow a downgrade to "sector perform" and price-target cut to $27 at RBC, which cited a longer-than-expected recovery time for phosphate margins. In the options pits, meanwhile, call volume on MOS stock has accelerated to 1.4 times what's typically seen at this point in the day.

Taking a closer look, call options are outpacing put options by a more than 2-to-1 ratio. Most active is MOS' July 27.50 call, where it seems safe to assume new positions are being purchased. If this is the case, the goal is for MOS to topple the strike price by Friday's close, when the front-month series expires. Earlier, the stock topped out at an intraday high of $27.36.

Today's accelerated call activity is nothing new in MOS' options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a top-heavy 10-day call/put volume ratio of 4.47. What's more, this ratio ranks in the 67th annual percentile, meaning calls have been bought to open over puts at a faster-than-usual clip.

However, there could be an ulterior motive to this recent rush toward long calls. Short interest rose nearly 4% in the last two reporting periods, and now accounts for a healthy 11% of MOS' available float. As such, it's possible short sellers have initiated long calls to hedge against any unexpected upside.

Technically, MOS has shed two-fifths of its value on a year-over-year basis. More recently, the stock has struggled in the $28-$31 region, with the lower end of this range currently home to Mosaic Co's (NYSE:MOS) 40-week moving average.

MOS weekly chart

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