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:
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:
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:
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:
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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