Watching Monsanto

Watching Monsanto

12:05pm (EST) Monsanto (MON, $77.95, down $0.17) is set to report earnings on Wednesday and since I have a lot of new readers, I thought it would be a good idea to profile a strangle option trade. A strangle is when you take a position in a stock, hoping for a big move. What you would like to see is at least a 10% move, sometimes a 20% move for the position to be profitable. It is possible to close one side of the trade for a quick profit and let the other side ride. Sometimes they work, sometimes they don’t. However, when you play events on an earnings announcement your goal is to make 10% and get out. With Monsanto halfway between $75 and $80, we could use the July 75 puts (MONSO, $2.60, up $0.05) and the July 80 calls (MONGP, $2.75,down $0.15) to put on this position. The total cost of the trade would be $535 and you are hoping one side of the trade doubles after the company announces earnings. If there is not a lot of movement and the implied volatility deflates after the report, you could end up with a loss if the stock doesn’t move 15%. This is more of a show-and-tell trade because I have not looked at how inflated these option prices are. If you do decide to look at the trade, please do some more research. Rick@TheOptionInvestor.com]]>

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