It has been tough to watch Potash (POT, $73.36, down $8.18) fall from $240 in June to below a $100 by October, then watch it fall below $70 to a 52-week low of $66. I was on the bull train on the way up to $200 from April through June and even before then. Since July though, we have been standing on the sidelines in hopes of the stock finding a new bottom.
In September when the stock was at $150, I mentioned how it was looking “attractive” but that if it failed $145, Potash could be headed much lower. On October 2, one of my blogs that day was “Potash Going Up In Smoke” with the stock at $97. Two days alone last week the stock went from $105 to $116 to $76. That should be enough to scare anyone away from being bullish but I think we are finally setting up for a good option trade in Potash.
I could bore you with the numbers and tell you what the company is going to make over the next few years or tell you how the price of potash fertilizer is still going for $1,000 a metric ton. The stock is cheap with a forward P/E (price-to-earnings) of 3 but valuations mean nothing in this market. At least not right now.
Just because the stock looks cheap doesn’t mean it can’t go lower. Plus we are in a market that no one trusts and that will take time. Having said that though, I do believe that Potash can rebound from these levels.
The November 80 calls (PVZKP, $6.90, down $4.60) fell 40% today and you could start your research there for a possible trade or you can look even further out. The 2010 January 180 calls (WPTAW, $4.00, down $2.50) also lost about 40% but they do not expire until January 15, 2010 – or 16 months from now. The high for these calls? $96. I’m not saying that these calls will go from $4 to $96 by the time they expire but there was some interest in these options today as nearly 400 contracts traded.
Rick Rouse
Rick@OptionsMentoring.com
