Monsanto - 03/05/10

Shares of fertilizer producer Monsanto (MON) have severely lagged the overall market the past two months. On Friday, with the broader indices all gaining over one percent, the stock lost 2.23%.

However, we are now looking for the stock to hold above $72 and rebound a little, creating an opportunity for some quick profits.  Should we see some further drop, we should hold above $70, with a break below there, creating some shorting opportunities.

With the stock due for a short-term bounce, we are recommending buying call options on Monsanto. Buy the March 2010 75 calls, which closed on Friday at $0.55 by $0.57.

With the stock in a downtrend, we want to enter into this trade ONLY if the stock is moving to the upside. If MON starts an upward move, then initiate the trade. We also want to take quick profits, as these are the March options, which expire on the 19^th and again, the stock is in a downtrend. When the options are up at least 15% after entry, exit.

RISK PROFILE:

Assuming we enter only when MON is moving to the upside, this is a low risk trade that should pay big. However, do not get greedy. Once up about 15%, do not hold the trade overnight beyond that point.

The stock market had a great week last week and as such, some profit taking this week would not be unexpected. Keep that in mind. Take early profits and once again, enter into trade only if Monsanto is moving to the upside. We will follow up on this trade here on the blog, so check back often and or subscribe to our RSS feed here.