Call Traders Should Add This Chemical Specialist to Their Portfolio

The $70 area is looking promising

Jan 18, 2022 at 12:01 PM
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The shares of CF Industries Holdings, Inc. (NYSE:CF) -- up 45% year-over-year -- have pulled back after scoring all-time highs at the end of December. This correction put CF at the $63.50 level, which is triple its 2020 closing low, and near the 80-day moving average -- a trendline that has supported breakouts in the past. In addition, the $70 area is noteworthy given its correspondence to CF's $15 billion market cap. With these solid technical foundations in place, now is the perfect time to speculate with calls.
An unwinding of pessimism could put wind at the equity's back. This is per CF Industries stock's Schaeffer's put/call open interest ratio (SOIR), which stands higher than 93% of readings from the past year. In other words, short-term options traders have had a bigger appetite for puts than usual.

A further shift in sentiment from the brokerage bunch could have bullish implications for CF as well, as five of the 11 in coverage still rate the stock a tepid "hold." What's more, short interest added 50.7% over the last month.

The good news is, options are affordable right now. This is per CF Industries stock's Schaeffer's Volatility Index (SVI) of 38%, which stands in the relatively low 25th percentile of its annual range, meaning options traders' volatility expectations are ice-cold at the moment. Further, the equity's Schaeffer's Volatility Scorecard (SVS) sits at 85 out of 100, suggesting the stock has exceeded options traders' volatility expectations during the past year.

Our recommended call has a leverage ratio of 5.0, and will double in a 19.8% pop in the underlying shares.


Subscribers to Schaeffer's Weekend Trader options recommendation service received this CF commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.


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