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Use Options to Gain From Monsanto’s Slide

The stock could be headed for the low end of its recent range

By John Kmiecik, InvestorPlace Contributor


The market rallied hard this past week, but has sold off early Monday, making this week a little bit more difficult to navigate. In the meantime, an options trader can still find possible candidates that look good no matter what happens in the market.

Monsanto (NYSE:MON) looks like one of those candidates. The stock has fallen from its 2011 high in late July and has been trading sideways for the last month between $63 and $71. Right now, the stock is at the high end of the range and should hopefully test the lower end of the range soon, with a nice target around $66.

If the market pulls in some, which it has so far on Monday, it helps a plan to buy put options on the stock. If Monsanto moves above $72, the trade can be exited to limit the loss.

The Trade: Buy the October 70 puts for $3.40 or less.

The long put strategy is pretty straightforward: The trade profits when the stock falls and the put premium increases as the stock moves closer “in the money.” The maximum profit is almost unlimited to some degree because MON can only fall to $0 and the maximum loss is $3.40 if MON finishes above $70 at expiration.

The spread can always be exited early for profit or loss.


Article printed from InvestorPlace Media, https://investorplace.com/2011/09/use-options-to-gain-from-monsantos-slide/.

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