9:00am (EST) In the past, I have talked about keeping Watch Lists and today I wanted to expand on this subject a little further. Most brokerage accounts or financial sites allow you to set up Watch Lists and they are used to help you keep track of stocks. They are also helpful because once you set them up you can quickly scan hundreds of stocks to see where the money is moving. Look, sectors of the market get hot and cold and money is always rotating in and out of Tech, Gold, Financials, etc. There are different reasons for this and over time you will learn where the money is flowing and why. Watch Lists can also help you learn charting and once you follow them everyday, you will easily start to remember how certain stocks trade. The first Watch List you want to create is five stocks that YOU like. You can call this Watch List whatever you want. If you are new to trading, pick a basket of stocks that represent different sectors. Once you do that, you can start creating other Watch Lists for sectors that you follow. For instance, if you had Intel (INTC, $16.14, up $0.28) in you favorite Watch List, you could start another Watch List for the Chip sector. Here you can add Rambus (RMBS, $18.76, up $0.25), Advanced Micro Devices (AMD, $4.08, down $0.05) and Texas Instruments (TXN, $21.41, up $0.68). One sector that is took a huge hit on Wednesday was the Agriculture/ Fertilizer sector. On my Watch List I have Agrium (AGU, $42.79, down $3.44), Monsanto (MON, $81.08, down $0.54), Mosaic (MOS, $46.25, down $4.96) and Potash (POT, $95.59, down $11.59). Potash got smoked, falling 11,%, and has been a frequent topic of the blog and other articles I have done over the years. Most recently, on March 15th I had this to say when the stock was at $76 a share: “After a slow start, this trade finally came to life as Potash added $10 for the week. The (April 100) call options traded as high as $1.85 on Friday so we were slightly positive for a minute as the shares were pushing $80. Springtime is here this week which means the farmers are starting to spread fertilizer on their fields. The risk for this trade is the news that several potash producers in Russia have dropped prices 25%, putting pressure on others to do the same. Potash, the company, has responded by slashing production which should help support prices. Because of this, I’ve lowered the exit target to $2.25 and raised the stop to $1.25.” The trade lost 25% and here were my closing thoughts: “Potash shares hit a high of over $80 on Thursday and Friday and this position was slightly positive before the stock took a dive in the last few hours of trading. However, we were out on Tuesday when our stop of $1.25 was hit. I had said that the risk for this trade was the news that several potash producers in Russia had dropped potash prices 25% and that caught up to us. The rebound was nice to see but the trade was busted once this news had come out.” Well, I didn’t trust a move higher in Potash but it eventually rallied from $76 to $120 by June 1st. I have profiled several triple-digit return trades on Potash (both call and put option trades) and I was thisclose from hitting another one. Back in March, you could have picked up the June 100 calls (PYPFT, $0.85, down $6.75) for $2-$3 (or less) and sold them for $20 last week. That is mad profits. Yesterday, they closed under $1. The reason for the big drop in Potash was news that a European producer was lowering its sales guidance and said that it was cutting prices for potash. In English, it means we have an inventory glut; just what Russia had warned about 3 months ago. As you can see, the June calls got punished yesterday. It is a great example on how fast the June options can swing in price because they expire Friday. On the other hand, the June 100 puts (PYPRT, $5.20, up $4.65) soared 845% folks. Once the stock made a 50% gain off its lows, it was only a matter of time before some sort of pullback happened. Now, to find a trade or to see even if there is one, you would look at where support is at. The chart shows short-term support at $94-$95 so the next couple of days will be crucial for Potash. Plus the technicals have suddenly turned bearish and Potash’s 200-day moving average now comes into play. If we get a drop below $94 then there could be more of a breakdown coming. At quick glance, a test to the low $80’s might be in the cards. But we aren’t taking any actions yet. However, you could also add the Potash July 85 puts (PYPSQ, $3.50, up $1.90, or 118%) as part of your Watch List to see how they trade over the next month. You could also add the July 120 calls (PYPGD, $0.90, down $1.75, or 66%) if you expect a rebound but they are now $25 out-of-the-money. That is a lot to make up in a month and these call options are nearly 5 “strikes” away from the current strike price. This would already scare me away from going long with this option. Another tip. When doing direction trades, try not to go more than 2 or 3 strike prices out for short-term trades. Sometimes if it is a really speculative play, then maybe, but most of the time I try to keep strike prices within reach. These are some of the steps I go thru when I look at a trade. We are not taking any action with the July puts but I have a lot of new readers and I’m trying to multi-task here. The point of this blog was to get you organized and for you to come up with Watch Lists. That means you should already have three to start which should be anywhere from 10-15 stocks. I gave you 4 in the Chip sector, 4 in the AG sector, and YOU are going to come up with 3-5 of your favorites. Over time, you will learn how some of the patterns these stocks display which will lead you to some great trades down the road.   Rick Rouse Rick@TheOptionInvestor.com]]>