Credit Spread – CF Industries Holdings Corp. (CF)

This trade is all about the stock's past levels of support

   

Most people don’t think about where and how their agriculture was produced. They just want to see the results. The same can sometimes be said about trading. Some traders don’t care about where their trade ideas come from as long as they can make money. Here is a trade idea on a company that produces something critical for plants to grow and at the same time enrich your portfolio.

CF Industries Holdings Inc. (NYSE:CF): Put Credit Spread

3 21 13 CFchart 300x120 Credit Spread – CF Industries Holdings Corp. (CF)
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The trade:
 Sell the April 185/190 Put Credit Spread (selling the April 190 put and buying the April 185 put) for 1.35 or better.

The strategy: The maximum potential profit for this trade is $1.35 if CF is trading above $190 at April expiration. The maximum loss is $3.65 ($5 – $1.35) if CF is trading below $185 at April expiration.  Breakeven is $188.65 at expiration based on a $1.35 credit.

The rationale: CF Industries manufactures and distributes phosphate and nitrogen fertilizer products globally. The company is generally sound financially even though revenue dropped more than predicted because of decreased prices in the last quarter of 2012. The company said they expect crop prices to rise in 2013 which would prompt farmers to plant more and use more fertilizer.

But this trade idea is really about what the chart tells us. The stock has come down to an area where is has been able to reverse its downward course numerous times. The stock closed right below the $195 area where it has support and it has reversed off that level several times and as recently as late February. If that level fails to keep the stock from moving lower, than there is another level of support at $190 which was previously resistance for the stock in spring of last year. The stock has not closed below $190 since June of 2012. Two levels of support for a credit spread is always better than one!

No positions held at the time of publication. If you are interested in more of my trade ideas please visit: http://markettaker.com/group_coaching/


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