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
