Cheap upside play in Monsanto

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One investor is using options to get long Monsanto on the cheap.

Our Heat Seeker monitoring system detected the purchase of 3,000 July 120 calls for $2.40 and the sale of an equal number of July 97.50 puts for $2.57. Volume was more than twice open interest at both strikes.

He or she collected a credit of $51,000 and now holds a position that will perform similarly to owning 141,000 shares in the agribusiness giant. But it will behave differently than owning stock outright. The correlation will increase if MON rallies toward $120 or falls toward $97.50, generating profit to the upside and losses to the downside.

Outside of that range, the position will perform the same as holding 300,000 shares. But if MON stays between $97.50 and $120, the options will slowly lose value and eventually become worthless. This way they won't miss a rally, but are tying up much minimal capital than they would owning stock. (See our Education section for other ways to get more bang for your buck with options.)

MON is up 1.32 percent to $109.71 in afternoon trading. It began the year around $117, the highest price since September 2008 before pulling back to its 200-day moving average by late January. It's now bouncing at that level, which could make some chart watchers think its long-term uptrend remains intact.

Overall option volume is quadruple the daily average so far today in MON, with that bullish trade accounting for more than half the total.




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: MON

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