Thursday, February 5, 2009

Spread out your fertilizer bets

It's obvious that the play here, on the play over there (China) is the fertilizer plays. I hated Potash at 213, when Wall Street loved it

but liked it at 69, when Wall Street finally turned bearish.

But now it is time to step into some other fertilizer plays.

Look at Mosaic (MOS 41.35), as they had good earnings, and then, like Potash did a few weeks back, it gave cautious guidance. Today the stock looks like it is ready to break out of a three month base, and you had plenty of action in the calls on this number. You have the charts and the fundamentals on your side with this, and it looks like it can move fast and hard right now. It's going to be at the Goldman Sachs conference on February 10, and the Morgan Stanley conference on the 18th, so I think these brokerages will push the stock.

What else is new? Why else was there so much buying of the calls? It's just another Wall Street inside job!

You could also mop up on the February and March 25 calls of Interprid Potash (IPI 22.42), which is the largest producer of muriate phosphate (MOP) in the United States. They also sell langbeinite, which is just potassium sulfate and magnesium sulfate under the brand Trio(R). Some plants, like tomatoes or tobacco have a shorter shelf life, if they are exposed to chlorides, so you need to use langbeinite for their fertilizer.

IPI competes with MOS, so the pairs trade is to buy Mosaic (and the March 50 calls at 1.30)and then buy the 25 calls on IPI.

And if you are a hedge fund, you leverage your position so you can make money for your partners!

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