Editor's note: At noon yesterday, Jim Cramer recommended buying January $65 call options (MONAM) in Monsanto (MON) for a trade in his blog. Monsanto was scheduled to post quarterly results this morning, and Cramer expected an upbeat report. The options were priced at just above $8 at the time that Cramer made his blog post and closed yesterday at $9. Meanwhile, Monsanto's shares were trading around $72. After the ag chemicals producer delivered a blowout fiscal first quarter this morning, Monsanto's shares opened nearly 10 points higher, sending the value of the options contracts as high as $19.70. Cramer's post below appeared yesterday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.
Monsanto Options Look Too Good to Ignore
1/6/2009 12:00 PM EST
(MON - Get Report)
January 65 calls. Mouthwatering to me. The company reports tomorrow and then goes on a road show next week. They will be talking about their pipeline, and they will be bullish as all get-out. These ag stocks have been slaughtered, and I want to find a way to play the darned thing ahead of the quarter, and I stumble on this contract.
It seems just right for me.
Let me tell you how I would play this from the old hedge fund days. Obviously the stock is getting killed here, hence the opportunity.
I would pick up the calls here. If you get a lift in the common, you sell some common against it, maybe on a 1-to-2 common-to-call ratio in case the bears on the stock are right.
You have a terrific catalyst right in front of you. You have a jazzed management team that has had a stock just destroyed right underneath them.
And, perhaps most important, you have Frank Mitsch, the excellent BB&T chemical analyst, saying the level is right. The calls enable you to low-risk the darned thing because of the nearness of expiration.
I think it is worth the plunge.
Reading over the
piece on the flagship site, I recall that it was ridiculous when the
approved this company to go public. What kind of transparency can a hedge fund really offer? Obviously this was one of the worst deals of all time. Can I just say that I hope the next SEC will actually say no now and then to a company that should not be listed? Or is that too much to ask?