POT – Planting The Seeds

I bought POT April 18 calls today.

I find the fertilizer names to be fairly interesting and it looks like many if not most of them are consolidating before what I expect should be a move higher.  POT fits with this view, and I’ll dive into the technical and options setup here as a result.

Let’s look at the daily chart:

POT 1.png

Chart from FreeStockCharts.com

There’s really only one thing I’m focused on here – the 200-day moving average.  POT has attempted to fall below a few times in the last couple of weeks, but with no follow through.  I like the sector as mentioned before and now POT seems to be finding support.  I’d like to see it push back toward the 50-day moving average around $18.30 and will ideally see a move toward the upper end of its range around $20.

What really would matter here is if Implied Volatility gives me a cheap entry to express this view:

POT 2.png

Chart from LiveVol

Implied Volatility is at lows.  With the name consolidating, Realized Volatility is a bit under Implied Volatility, but I’m expecting a breakout of this consolidation pattern, so I like a little bit of Gamma and a little bit of Vega here again.

So, I’ll look at the markets for an outright long call position:

POT 3.png

Screenshot from LiveVol

First, we note that April Implied Volatility is the lowest on the board.  And along with this, the April $18 calls at under 25 cents gives a very interesting R&R on a move toward $20.  But, there’s something else going on today that also flagged POT for me.  Someone else is buying calls here:

POT 4.png

Screenshot from LiveVol

There was a fairly large buyer of June $18 calls on the offer this morning.  I think June is an interesting play, but I wanted the lower Implied Volatility from the April options.  I chose the $18 strike just as the other much larger player did, but I find my R&R to be a bit better if this move happens faster.  Obviously, it could take time and I’ll find that the April calls were a waste.  But, if we sit for a month, the June calls will also decay some and I can look at a new position on the next technical setup.  For now, I’ll focus on the R&R of the April $18 calls which is good on a move to the 50-day moving average and exceptional if we can get a move back to the upper end of the range.



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