Put Options Pop as CF Industries Holdings, Inc. (CF) Dives on Earnings

With CF Industries Holdings, Inc. (CF) short-sale restricted after earnings, the stock's put options are popular

Aug 4, 2016 at 1:50 PM
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CF Industries Holdings, Inc. (NYSE:CF) is tumbling following a disappointing earnings report, impacted by a slump in fertilizer prices. Also, despite a supply glut in nitrogen fertilizer, CEO Tony Will said CF (and likely its rivals) will run plants at full capacity. At last check, the stock was down 12.2% at $21.54, fresh off a five-year low of $20.77, and on the short-sale restricted list -- while its options pits are heating up.

The intense options action is especially evident on the put side of the aisle. Right now, puts are outstripping calls, and trading at seven times the expected intraday rate. The most active option is the weekly 8/5 21-strike put, which speculators are buying to open in the hopes CF will tumble south of $21 by tomorrow's close, when the series expires. Just behind it in popularity is the weekly 8/5 21.50-strike call, where traders are purchasing new positions, expecting a bounce above $21.50 by week's end.

In recent weeks, call buyers have held a definite advantage. Based on data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CF traders have bought to open 1.72 calls for every put -- a ratio ranking near the top quartile of its annual range. Of course, a portion of the call buyers could be short sellers hedging, as 12.3% of the stock's float -- or 6.4 times the average daily trading volume -- is sold short.

The brokerage bunch, meanwhile, is tilted in a bearish direction. Of the 13 analysts tracking CF, nine have handed out a "hold" or worse suggestion. That said, the stock's average 12-month price target of $29.50 represents a lofty 37% premium to current levels.

All things considered, there may room for CF Industries Holdings, Inc. (NYSE:CF) to run to even lower lows. Specifically, if option bulls throw in the towel and/or analysts begin slashing their price targets, the stock could run into headwinds.

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