By using options, just a small uptick in price from this stock that is trading just above a decade-low can produce triple-digit gains for your portfolio. See Alan Knuckman’s step-by-step instructions on how to place this high probability trade.
We plant the seed, nature grows the seed and we eat the seed…
Supply and Demand truly drives the markets. The 2012 Midwest heat drove grain prices to record levels. Beans in the “Teens” and nearly double digit Corn peaking above $8.00 per bushel were a result of the heat ravaged crops on the worst drought in 50 years.
The next few growing seasons saw supply shoot back up with farmers flushed with product.
Mother nature is always unpredictable with PRICE SHOCK potential if conditions are too wet, too hot or again too dry at crucial points in the growing cycle.
Ag play Potash has suffered as farmers’ fortunes shrunk on fencepost to fencepost planting to put Corn at $3.00 in 2016. New crop corn that gets planted this spring has sprung to between $3.70 and $3.90 for the last six months, building from a base for a breakout.
POT plunged from $50 in 2012 to decade lows below $15 last February.
POT trade has tracked from $16 to $20 in the last year, recently retracing back to the $18 midpoint support to lean on.
A breakout above the $20 top targets a $4 channel measured move to $24. That target is 33% above the current POT price.
This is an opportunity to use the power of options for a capital preserving stock substitution strategy.
The January option has over one year for Bullish development.
An In-The-Money option gives you the right to be long the shares from a lower strike price and costs much less than the ETF share cost itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
A Potash long call option can provide the staying power in a potentially larger trend extension. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security. It is also important to buy options that payoff from only a modest price move.
There is no need to ONLY make money on the all but infrequent long shot price explosions.
Good Options can profit from just modest directional moves.
Any trade has a fifty/fifty chance of success. Buying In The Money options increases that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options are more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With POT trading at $18.10, for example, an In The Money $15 strike call option currently has $3.10 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need — at least three to six months for the trade to develop. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right but only after the option has expired premature to the market move.
Trade Setup: I recommend the POT January 2018 $15 Call at $4.25 or less.
A close in the stock below $16 on a weekly basis would trigger an exit. Notice the $15 strike has the right to be long from a discounted level that marked the February decade low.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.
The option also behaves much like the underlying stock with a much less money tied up in the investment. The Delta of this $32 strike is 74%.
The January option has over a year of time for bullish development.
The maximum loss is limited to the $425 or less paid per option contract with an exit stop loss at half the option premium to reduce dollar exposure. The upside, on the other hand, is unlimited.
The POT option trade break even is $19.25 at expiration ($15 strike plus $4.25 or less option premium). That is just a dollar above the current ETF price.
A push above $20 channel top resistance targets $24, which would put the option value at $9.00 to double the original option investment.
A long hard growing season lies ahead to grow Potash profits…