Wednesday, July 23, 2008

Potash reports tomorrow

And if the earnings are good? SELL it. And if the CEO says good things? SELL it. And if they say pricing is still tight? SELL it. And if he says this is a multi-year run in fertilizer? SELL it. And if another Wall Street shill comes out with another $340 target on Potash? SELL it.

Here's my feelings on Potash. Read it before earnings then SELL it.

Now before Apple reported, I said that you could just short the puts before earnings, and then buy the stock:

Why sweat it? Apple always seems to give you a chance to get in after the earnings release, and before the conference call. Some hedge fund will try muscling the stock in the thin market to make it appear that the news is bad. Pick off shares from him if you're quick and you're a bull.

And sell the premium on the way out of the money puts, to the bears buying protection before earnings who think the long lines at Apple are for those returning merchandise.

It worked. They sucked out the volatility on the naked puts, and they let you pick up the stock at 148, for a 20 point move in two days.

Use the Apple lesson to play Potash. The premium on the puts and calls have been skewed tremendously. If Potash reports a good number, the volatility will be crushed on the puts. Buy them then, if the stock gaps on a good number.

And then sell the puts, when it reverses.

The fertilizer trade is over.

And that's the play in Potash tomorrow.


Anonymous said...

So your argument is its over because it has had a big run? I really hope you do more analysis on companies than that. If you perform more due dilligence and come up with a more convincing argument then I will gladly listen. There are many factors involved in determining prices for corn, wheat, soybeans, potash, phosphate, and nitrogen. These include weather, simple supply/demand forecasts, changing demographics, and supply shocks (strike, sinkholes, lead-time for greenfield mines, etc) to name a few. All these and more help determine earnings power for POT and other fertilizer companies. So please, give me a real reason and not "It has performed too well recently."

Palmoni said...

Granted pricing seems to be good out to late 2009-but is it?

Maybe I just know too many farmers! At a certain price, price matters.

1918 Webb-Pomerene Act allows the competitors to talk. The Canpotex cartel uses this in pricing. And the US cartel (Phosphate Chemicals Association) is abusing pricing, and eventually repurcussions happen.

Earnings power is a misnomer. POT's "power" is pricing, and you can come up with all kinds of reasons to justify the higher prices that "determine earnings power.". It may not be gouging to the Chinese, but it is to the American farmer. It's not about fundamentals, it's about how much profits can accrue to POT.

With oil, at a certain price, price mattered, even though we had a "supply" shortgage.

Oil wasn't supposed to fall, but it did. The same with natural gas.

And what makes up most of the cost of chemical fertilizers? Natural gas. SO if NG goes down, shouldn't prices? The next step is downward pressure in "rock" fertilizer pricing.

And I didn't say it has performed too well lately. It looks like it is rolling over on the charts. And with 73% insitutional ownership, it's not something we haven't discovered yet!

I think POT shareholders will soon feel some of the pain that the farmers are feeling.

But first, let it gap up on earnings tomorrow!

Palmoni said...

The stock is at 170 today...down from 215

Does your statement "I really hope you do more analysis than that" still hold?

Good luck trading-two sides maker a market!