Call Options Or Put Options On Monsanto (MON)?

| August 8, 2012 | 0 Comments

MON OptionsMonsanto (MON) makes agricultural and vegetable seeds, plant biotechnology traits, and crop protection chemicals.  They’re the largest seed producer in the world.

Their most successful products are the weed killing herbicide Roundup and the seeds they engineer to be resistant to this chemical.  Farmers plant Roundup Ready seeds and then spray the fields with Roundup to kill everything but the desired crops.

MON currently trades for $88.61 per share.  The shares are up more than 50% from the 52-week low of $57.94 and they just hit a new 52-week of high of $89.75.    

Is this an opportunity to buy call options on Monsanto (MON) as it races higher?  Or should you buy put options on MON as it takes a step back?

The bulls make a convincing argument…

MON has been on fire the last few months.  The stock has gone nearly straight up from $70 to almost $90 per share since mid-May.  And it’s showing no signs of slowing down.

The catalyst for the rapid rise has been soaring corn prices.  As I’m sure you know, the US Corn Belt is suffering through the worst drought in more than 50 years. 

The USDA has already cut their corn output forecast and they’re likely to slash their estimates by an additional 15% this week.  If that holds true, the US will have its smallest harvest in five years.  And by next summer, corn supply will be at its lowest point in 17 years.

One thing’s for sure, farmers will be planting as much corn as they can next spring if corn prices stay at record highs.  And that means they’re going to need lots of seeds…  The increased demand for seeds will allow MON to increase prices. 

Put simply, strong demand and higher sales prices will drive MON profits through the roof next year.  That’s a recipe for a higher stock price.

But the bears have a compelling case as well… 

There’s no doubt about MON’s ability to reap huge profits next year.  But that alone isn’t enough to fuel another surge in the stock.

You see, further down the road, MON has some big challenges ahead of it.  The big one is the end of their Roundup Ready technology patent protection in 2015.  Then anyone can make Roundup resistant seeds. 

In other words, MON is losing their centerpiece of their business.  And they haven’t developed anything to replace this lost revenue stream.  Until they do, it will be an albatross around their neck. 

I’m sure the bears have their sights set on MON after a huge run up in the stock.  And the stock will be vulnerable to wild swings until Monsanto addresses these longer term problems.   

If you think the bulls are right, take a look at buying the MON January 2013 $100 Call for around $1.50. 

If you think the bears are right, take a look at buying the MON January 2013 $75 Put for around $2.10.

***Editor’s Note***  It’s not every day we recommend you take a look at a competing newsletter’s stock picks.  But tomorrow Gordon Lewis over at Penny Stock All-Stars is releasing a renewable energy penny stock that has sky-high potential.  Click here for details on his newsletter… and to get the name of this stock.

Good Investing,

Corey Williams

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Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.