Agriculture Stock Boasts Strong Technical Foundation

An unwinding of pessimism could put additional wind at CF's back

May 17, 2022 at 2:03 PM
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Agricultural stock CF Industries Holdings, Inc. (NYSE:CF) is breaking out of a wedge pattern as it finds support at its +100% year-over-year breakeven level. Additional padding on the charts is emerging by way of the 80-day moving average, which occurred twice in 2021 and turned out to be a good buying opportunity for investors. Considering this, now might be an ideal time to buy CF with calls. 

CF May17

There looks to be plenty of room for analyst upgrades. Of the 10 brokerages in coverage, just three say "strong buy," compared to seven "hold" ratings. 
 
CF Industries stock's options players have been quite bearish, too. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 1.49, which sits higher than all but 1% of readings from the past year. In other words, options traders are picking up long puts at a much quicker-than-usual clip, and a shift in sentiment here could send the stock even higher. 
 
Now looks like the opportune time to get in on this rally with options. While the stock's Schaeffer's Volatility Index (SVI) of 68% sits in the 71st annual percentile, this number is falling rapidly, which means options traders could soon be pricing in lower volatility expectations for CF. What's more, its Schaeffer's Volatility Scorecard (SVS) sits at 80 out of 100, implying CF tends to outperform these volatility expectations.
 
Lastly, our recommended call option has a leverage ratio of 4.4 and will double in a 23.2% pop in the underlying equity. 

 

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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