CF Industries Options Bulls Nabbed Another Win

The stock saw significant monthly gains in both August and September

by Emma Duncan

Published on Oct 4, 2018 at 3:15 PM

Right on the heels of a big win in our Options Advisor newsletter, subscribers to Schaeffer's Weekend Trader Alert service just scored a 100% profit with the CF Industries Holdings, Inc. (NYSE:CF) November 45 call. Below, we're going to take a look back at why we were bullish on the agricultural supplier, and how CF performed after we suggested the call option. 

When we entered the position on Monday, Aug. 13, farming supply stock CF Industries had been in a strong uptrend, having added roughly 60% during the previous 12 months. In early August, the shares jumped above long-term resistance in the $45 area -- thanks to an impressive turn in the earnings booth -- and had since been consolidating in a tight sideways pattern, giving bullish traders a chance to get in before their next leg higher.

Sentiment data also suggested that more upside could be coming. Most notably, the vast majority of analysts covering CF still carried "hold" or worse ratings, showing there was room for bull notes going forward. A shift had already started, with the equity enjoying multiple price-target hikes following its aforementioned earnings report.

Plus, short interest was significantly lower compared to a year ago, and had fallen almost 17% in the two most recent reporting periods. But with more than 12 million CF Industries shares still held by short sellers -- more than five times the average daily trading volume -- short-covering tailwinds were expected to keep pushing the security higher.

We also attracted to the stock's relatively cheap options premiums. CF's Schaeffer's Volatility Index (SVI) of 27% stood in just the 11th annual percentile, revealing low volatility expectations were being priced into near-term contracts.

In the wake of our mid-August recommendation, the stock continued its uptrend, closing August out with a nearly 17% gain, and surging 4.8% in September. In addition to a 25.5% drop in short interest between the Aug. 15 and Sept. 15 reporting periods, a steady stream of bullish brokerage notes kept the wind at the equity's back. In fact, a price-target hike to $62 from $58 from UBS on Tuesday sent the shares to a then three-year high $56.41 -- CF tagged the $56.51 mark earlier today -- allowing us to close the trade, and lock in our targeted 100% profit.

Daily Chart of CF with Entry Exit Dates

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