How Options Traders Doubled Their Money on This Soybean Stock

ADM was on solid technical footing ahead of this week's tariff-driven volatility

Managing Editor
Apr 5, 2018 at 2:45 PM
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Subscribers to Schaeffer's Weekly Options Countdown service just scored a 100% profit with the Archer Daniels Midland Co (NYSE:ADM) weekly 4/6 42.50-strike call. We're going to take a look back to see why we were initially bullish on ADM when we recommended the call, and how the options trade unfolded.

At the time of our call recommendation this past Sunday night, April 1, we noted the food processing stock had been solid in the first quarter, and sported a year-to-date lead north of 8%. What's more, ADM had created a series of higher lows and highs since its November bottom, so momentum clearly favored bulls, especially after a positive reaction to the latest crop report.

However, put buying had been unusually popular during the previous two weeks across the major exchanges, with the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.84 outranking 85% of all similar readings from the past year -- which meant that there was potential for an exodus of bears to drive the share price higher.

Also, the Schaeffer's Volatility Index (SVI) of 21% ranked in the low 13th annual percentile, meaning short-term options were attractively priced, from a volatility standpoint. In our Sunday night bulletin, we recommended that subscribers enter a market order to buy the weekly 42.50 call on Monday, April 2.

As a major soybean exporter, ADM took its cues this volatile week from the onslaught of tariff and trade war headlines. The stock dropped big on Monday, but rallied back strongly on Tuesday and Wednesday, echoing broad-market gains as trade tensions eased. By Wednesday's close, the stock had more than erased Monday's 2.5% drop.

In the first half-hour of trading this morning, ADM traded as high as $44.38 -- up about 5% from Monday's closing price, and just over 2% from last week's close, but sufficient to yield a quick double on our weekly option. We closed the call position earlier this morning, just days after entry, to lock in a 100% profit.

Daily ADM With Entry and Exit Dates

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