Potash (POT, $67.10, down $6.26) continued its slide today which allowed for some nice entry points for a couple of call option plays. The stock fell nearly 10% and touched a new 52-week low of $63.58 in the process. We can pretty much blame the decline on the horrendous day the Dow had (down 500+) and the fact that everyone is fearing a global recession.
I had mentioned Tuesday night that the November 80 calls (PVZKP, $4.70, down $2.20) and the 2010 January 180 calls (WPTAW, $3.00, down $1.00) were high risk/ high reward trades. Potash opened near $70 and both calls were naturally lower than where they were from Tuesday’s close.
The market downtrend was intact from the opening bell which may have scared some of you away from the trade. That was not the purpose. The trade has been balanced so that if the November calls do not perform up to expectations then we still have insurance with the January 2010 calls which do not expire for another 16 months.
Potash could continue lower and I still think the Dow has another 1,000 to go on the downside so the risks are there. We still have seven more trading days for the month of October and the aforementioned calls could become even cheaper. That is why we are doing half positions on a lot of trades and even hedging a few because I still expect us to test the market’s lows again.
Rick Rouse
Rick@OptionsMentoring.com
