POT – Potash Corp./Saskatchewan – Diverse bullish options strategies employed on the potash producer this morning indicate a number of investors are itching for a rally in the price of the underlying shares ahead of year’s end. It looks like one trader initiated a bullish risk reversal in the November contract, while another optimistic player populating December contract call options enacted a butterfly spread. POT’s shares are currently down 0.90% at $140.11 as of 12:05 pm ET, perhaps on reports that Sinochem Group, China’s largest fertilizer trader, might have trouble acquiring state financial support for a takeover of the Canadian firm, which would make a deal between the two firms less likely to occur. POT rejected a $40 billion takeover bid by BHP Billiton in August and said it intends to seek other bids. The nearer-term bullish player appears to have put on a risk reversal, selling 5,000 puts at the November $130 strike at a premium of $1.75 each in order to buy the same number of calls at the November $140 strike for premium of $5.25 apiece. The net cost of the transaction amounts to $3.50 per contract, thus positioning the trader to make money if POT’s shares rally 2.4% over the current price of $140.11 to surpass the effective breakeven price of $143.50 by expiration day next month. Further along, in the December contract, an options player initiated a butterfly spread, buying 1,400 in-the-money calls at the December $140 strike, selling 2,800 calls at the December $150 strike, and purchasing 1,400 calls at the higher December $160 strike price. The investor paid a net $2.50 per contract to initiate the call ‘fly and starts to make money if the potash producer’s shares rally 1.705% to surpass the effective breakeven price of $142.50 by December expiration. Maximum potential profits of $7.50 per contract are available to the trader if POT’s shares jump 7.05% in the next couple of months to settle at $150.00 at expiration.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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