Call Options Or Put Options On Mosaic (MOS)?
Mosaic (MOS) is a leading producer of potash crop nutrients, used as fertilizer and animal feed ingredients for the agriculture industry. The market for potash is interesting in that there are very few players selling this extremely important fertilizer worldwide.
MOS shares are currently trading for $43.81 after plunging 18% yesterday. The shares are now 10% below the previous 52-week low of $47.90 and are 32% below the 52-week high of $64.65.
Is this an opportunity to buy call options on MOS after yesterday’s price plunge? Or should you buy put options on MOS due to the expected steep price decline in potash?
The bulls make a convincing argument…
The potash world was shocked by the collapse of one of the two global potash cartels. The collapse was due to the exit of Uralkali. The Russian company is the world’s largest potash producer and now plans to flood the market with cheap potash.
Of course, flooding a market typically results in cheaper prices – which could negatively impact producers of a commoditized product such as potash. Thus, we saw a huge selloff in potash companies such as MOS.
However, lowering prices should also spark demand. And, the potash industry has been mired in slower demand and in need of a kick start. Not to mention, there’s no guarantee Uralkali is going to dump their entire product on the market at once – they still have their own financial interests to look after.
More importantly, even if the price of potash drops, it would only be in the short-term. Ultimately, a rise in demand is better for the industry long-term. And as usual, investors tend to overreact to negative news.
But the bears have a compelling case as well…
Mosaic had already been struggling even before the Uralkali cartel exit was announced. Potash demand has lessened this year and now there will allegedly be much more of the product on the market.
Uralkali plans to boost production by 2.5 million tons next year. That’s a lot of potash. And while it may spark demand, there could be significant pressure on potash prices in the short-term.
That could pose a serious threat to the top and bottom lines of major potash producers like MOS. After all, there’s a reason why the entire potash industry got hammered when the Uralkali news came out.
So is the drop in the MOS stock price a good buying opportunity, or will the shares fall even farther with this week’s bearish potash news?
If you think the bulls are right, take a look at buying the MOS September $45.00 calls for around $2.50.
If you think the bears are right, take a look at buying the MOS September $40.00 puts for around $1.25.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
