Bullish Potash Calls Bets being Made (POT, MOS)

A big buyer picked up 12,000 April $90 and $95 Potash Corp. (NYSE:POT) Calls last Friday (3/20), so what does it mean with big potash stockpiles and productions cuts overshadowing the industry?

ONNTV.tv talked up the recent activity on Potash Corp (NYSE:POT) options, here's how the April $90 and $95 Calls look today:

Expires Symbol Last Chg Bid Ask Vol Open Int Apr 09 PYPDR.X 3.60 0.40 3.50 3.60 1,945 22,348

Expires Symbol Last Chg Bid Ask Vol Open Int Apr 09 PYPDS.X 2.12 0.27 2.10 2.20 810 18,870

Todd Harrison from Minyanville.com wrote about this on Friday about Potash and the other industry big boys, his comments:

There has been recent rumors that fertilizer industry is due for some consolidation so companies such as Potash, Mosaic(NYSE:MOS)and Monsanto (NYSE:MON)can get some pricing power back. This has led to some takeover speculation that has helped the shares trend higher and caused an increase in the options' volume of late.

This morning there was a big option transaction in POT in which 11,000 of the April $90 calls traded in one slug. But don't let that lead you into thinking someone is making a big buy-out bet. The trade was executed at at the offer price of $2.70 a contract. Actually the price was a small "discount" to the theoretical fair value. This suggests the initiating party was selling the calls. Most likely it is an overwrite against long stock to take in some premium.

It still leaves someone with a bullish position, they have a potential upside of about $12.60 or 15% over the next month. But it doesn't appear anyone is betting the farm on a $95 plus takeover.

So is now the time to buy Potash Corp. and other Potash players?

According to the latest data form the Fertilizer Institute, potash inventories at North American producers are 42% than the previous five-year average. North American potash shipments in the month of February were down 80% from the same month period a year earlier.

Potash Corp of Saskatchewan (POT), the world’s largest fertilizer producer, to further curtail potash production. The company said it plans to reduce 2009 potash output by an additional 1.5 million tonnes, bringing the total expected curtailments of operational capacity this year to at least 3.5 million tonnes. Potash Corp said it still expects a strong rebound in potash demand in the second half of 2009 that should continue into 2010.

Speculation is what you have to go on fellow investors, Potash Corp (POT) is trading at $83 today, it could easily go lower, but traders are betting in the coming month, Potash shares could gain back some market share.  The 52-week range for Potash Corp runs from $47 all the way to $241.

Will Potash prices hold, will they increase, will they fall?  If the farmers around the world drop the demand which is widely expected, prices will fall, but at least Potash Corp. is making an attempt at controlling costs by keeping inventory in check, scaling back production, and even allowing shareholders to vote on they way it pays the companies top execs. 

Potash Corp said yesterday it would introduce a non-binding advisory shareholder vote related to executive compensation at its annual meeting in 2010. As a result of the plan, Potash said ethical-investment firm Meritas Mutual Funds has withdrawn its proposal on the topic, which was scheduled for consideration at Potash Corp's May 7 annual meeting.

So should you go out and buy 12,000 options on POT that expire next month?  No, but maybe a few shares could be a decent investment at this point.

Happy Trading.

Disclaimer: No positions in POT.