Well, it’s time to take yet another look at Potash (POT, $55.20, down $1.27). Near the end of October we went long on some November calls in Potash as the charts showed a quick bounce was in store. Barron’s had just did a weekend article on the stock and everybody was suddenly bullish again. We took advantage of the bounce from $60 to $90 and made out like bandits.

The November calls provided many of us an opportunity to make 100%-200% in a matter of 10 days. We raised our stops along the way and got out while the gettin’ was good. After hitting a high of $95 on November 5, the stock has stunk worse than a wet dog and made a fresh 52-week low today.

Potash hasn’t had any significant news regarding its upcoming earnings but Mosaic (MOS, $27.16, up $1.76) said today it expects sales volumes to remain soft for its third quarter but should recover after that. Despite the news, the stock bounced higher. However, if grain prices remain low, the demand for fertilizer is going to remain soft, because margins have declined for farmers. Plus there’s the high inventory issues that have come with over-production.

Options traders seem to be targeting Potash instead of Mosaic because Potash has a lot further to fall. The Potash December 50 puts (PVZXJ, $2.70, up $0.10) had some heavy volume as over 2,000 contracts traded hands. More interesting is the fact that the December 40 puts (PVZXH, $0.75, up $0.10) were also active as 2,800 contracts switched hands.

I like both options plays and would buy the 50 puts up to $3 and the 40 puts can be entered up to 80 cents. The December options expire in 17 days so keep an eye on your entry and exit points. This is a trader’s market and we are bound to see continued volatility in shares of Potash.

Rick Rouse