From $185 to $98 in 10 days. That’s what has or is happening to Potash (POT, $97.91, down $30.13) today. Blame it on whatever you want but these are unprecedented moves. Talk about throwing the baby out with the bathwater. After all the bullish arguments we have heard from Potash, Wall Street is bailing out of this stock because the dollar is higher today and demand is weakening?
Potash has dropped so fast that the lowest October put option quotes I’m finding are the October 95 puts (PSPVS, $8.40, up $6.95). The October 130 puts (PSPVF, $33.50, up $21.30) which were slightly in-the-money are up 200%. For diehard bulls, the November 120 calls (PYPKD, $9.00, down $12.50) are now 60% cheaper than they were yesterday.
General Electric (GE, $22.23, down $2.27) isn’t in the same business as Potash but its stock is also getting crushed despite Warren Buffett stepping up to the plate again. Latest news out of Camp Buffett is that he is going to buy $3 billion of preferred shares of GE which carry a 10% dividend. He also has the option to buy $3 billion worth of GE common shares for $22.25 each.
Just last week his Berkshire Hathaway company (BRK-A, $138,000, up $1,000) invested $5 billion in preferred Goldman Sachs (GS, $128.67, down $5.83) stock with the same 10% dividend. He also reserves the right to buy an additional $5 billion in Goldman common stock for $115 per share at any time over the next five years.
Add it all up and Mr. B has basically pledged $16 billion to GE and JP. That’s making a statement folks. BTW, the General Electric January 30 2010 calls (WGEAF, $2.00, down $0.20) are getting some action this morning and open interest stands at nearly 100,000 contracts.
Apple (AAPL, $102.08, down $7.04) could be below $100 by the end of the day. I don’t believe in all the hype of Apple hurting because of a slowing economy and consumer spending weakening. When Apple’s iPod Touch went from $399 to $229, I was all over it. I wasn’t worried about the price because I’d rather pay $1.99 for the latest music instead of spending $10 to buy the whole CD. While there are some CD’s that are good from beginning to end, buying the iPod is actually saving me money down the road. Just saying.
I bring these things to light because if you are an investor and your time horizon is five years, these stocks are dirt cheap. Maybe. If you are an option trader, then we can exploit these situations into making huge profits with the right options.
Rick Rouse
Rick@OptionsMentoring.com
