Monsanto Company (MON) Options Hot as M&A Buzz Builds

Bloomberg has reported that Bayer AG and Monsanto Company (NYSE:MON) could be nearing a deal

Aug 23, 2016 at 10:46 AM
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Options traders are blasting Monsanto Company (NYSE:MON), after Bloomberg reported the agriculture firm may be on the cusp of closing an M&A deal with Bayer AG. This continues months-long speculation surrounding the two firms, with MON rebuffing Bayer's previous buyout bids in both May and July. While MON stock was last seen up 3.1% at $107.77, options volume is running at five times what's typically seen at this point in the day, with calls having a healthy lead over puts.

Today's call-skewed session is nothing new for MON, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 1.85 calls for every put over the past 10 sessions.

Plus, MON's Schaeffer's put/call open interest ratio (SOIR) is docked at 0.36. Not only does this show that calls outweigh puts among options set to expire in three months or less, but it ranks below 82% of all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy than usual.

Drilling down, the stock's September 110 call has seen the biggest rise in open interest over the last two weeks, with 7,687 contracts added. Plus, according to the major options exchanges, a healthy portion of the activity at this front-month strike has been of the buy-to-open kind, meaning options traders are betting on a breakout above $110 by the close on Friday, Sept. 16 -- when the series expires.

This optimism is seen elsewhere on the Street, as well. Among the 11 analysts covering MON, seven maintain a "strong buy" rating, with not a single "sell" to be found. Plus, short interest dropped almost 28% in the two most recent reporting periods, and now accounts for just 1% of the stock's available float.

On the charts, Monsanto Company (NYSE:MON) has put in a strong performance since hitting a year-to-date low of $83.73 in early March, up almost 29%. What's more, the stock's pullback from its mid-June annual high at $114.26 was quickly contained by MON's 80-day moving average -- a former level of resistance that seems to have switched to a more supportive role.

MON daily chart August 23

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