Options: Potential Call Spread on Ag Stocks

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Investors selling calls on The Mosaic Company (MOS) could still be bullish in the hope that shares of the agriculture nutrient producer will continue their week-long ascent.

This morning a customer sold more than 10,100 Sept. 65 calls for around $2.00 vs. current open interest of 1,148. MOS shares are up 20 cents to about $47.92 while the value of these calls has declined five cents so far today. But the 11% rise in MOS shares so far this week could potentially tell an overarching bullish tale for the equity.

MOS, along with other agriculture stocks such as Monsanto (MON) and (POT), rallied through yesterday's release of the World Agriculture Supply and Demand Estimates report. The WASDE report said U.S. commodities production will slightly decrease while consumption will increase in May compared to last month, resulting in a reduction in world stocks.

Corn supply, specifically, will decrease slightly while demand could increase by 3.5%, which computes to an 8% drop in world corn stocks compared to May last year.

It's worth noting today that first-quarter earnings reports have already passed for MON, MOS and POT, so investors are more willing to be long these stocks because of the positive planting expectations from the WASDE report.

In addition, China trade data show a 55% increase in soybean imports since last year, according to the USDA. Such demand gains helped push MOS stock up, but analysts anticipate a major decline in China's import demand as commodity futures prices increase.