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If a stock drops $90 from $240 to $150 in 2 1/2 months is it a buy? That’s an open-ended question of course but if the same stock made a run from $85 to $240 within a year and now sits at $150, you would at least have a look at it, right? Well, that’s what we are going to do with Potash (POT, $148.32, down $7.14).
We were fortunate enough to play Potash on its ride to $240 from April to June and that was pretty much the last time I have mentioned the stock. This is when Potash ran out of gas and has been in a steady downtrend since. Yeah, it would have been nice to have made some of that money on the downside but we have been busy with other plays. That’s not to say I haven’t noticed the decline, I have.
There’s a few events that are going on with Potash mainly lower oil and sulfur prices. A strike at several of the companies plants have also weighed on the shares but they will not carry as much impact as falling prices.
I’ve written about Potash’s business model in the past so I won’t bore you again with the details. What makes it hard to go long on anything right now is because of the piece I wrote on Tuesday. I had mentioned that September and October were normally pretty lousy months for the market. I had also mentioned some of the October crashes. While today hardly counts as a market correction (the Dow is down 300 points as I speak) this is why I have been hesitant with buying call options and if I do they are quick trades.
Having said all of that, I do think Potash is getting to an attractive entry point and for now I am monitoring the October 175 calls (PYPJO, $3.58, down $1.72). I’m not quite ready to pull the trigger but there is strong support here at the $145 level for Potash.
Rick Rouse
Rick@OptionsMentoring.com
Potash Smokes Higher
Thursday, October 30th, 2008
Like a tide that lifts all boats, the market’s recent rally has helped push shares of Potash (POT, $84.71, up $5.31) higher over the past three trading sessions. The stock hit a low of $60 last Friday and has quickly reversed course and held above $80 all day.
On October 21 and 22, I profiled the November 80 calls (PVZKP, $11.30, down $3.50) and the 2010 January 180 calls (WPTAW, $6.10, up $3.50) as high risk/ high reward trades. The November 80 calls have returned 140% as they were trading for $4.70 at the time. The January 180 calls are way out-of-the-money but have value simply because Potash can be an explosive stock. These calls were trading for $3.00 at the time of the blog and have easily doubled.
The trade was balanced so that if the November calls did not perform up to expectations then we still had insurance with the January 2010 calls which do not expire for another 16 months. Today, we got the best of both worlds as Potash looked strong all day.
The market has shown some strength this week and it looks like we may get out of October without another bomb dropping. The short-term oulook is up especially with the election right around the corner. This is normally a bullish time for the market and this rally could continue into next week. However, place stops accordingly, at least 75%-100% above your entry prices.
Rick Rouse
Rick@OptionsMentoring.com
Tags: LEAPs, Potash, Potash call options
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