Agricultural issue Monsanto Company
(NYSE:MON) is up 4.6% at $106.36, thanks to an upgrade to "outperform" from "neutral" and a price-target hike to $117 from $105 at Macquarie, reports China has approved three new strains of soybeans, and a legal victory in the US.
Nevertheless, one options player is betting on a notable fall from grace for the stock over the next few months.
So far today, MON has seen roughly 11,000 puts change hands -- about six times its average intraday put volume, and 1.29 times the number of calls exchanged. Digging deeper, symmetrical blocks of 2,500 contracts traded at the October 80 and 95 puts -- the former at the bid price of $0.62, suggesting they were sold, and the latter at the ask price of $2.48, implying they were likely bought. Both blocks were marked as "opening," pointing to the initiation of a bear put spread
By purchasing the 95-strike puts, the strategist expects Monsanto Company to stage a retreat before October options expire. The sale of the deeper out-of-the-money puts merely reduces the cost of entry to $1.86 per pair of options. In order to profit on the play, the investor needs MON to breach $93.14 (bought strike price minus net debit), though the sale of the puts caps his profit potential at $13.14 (difference between strikes, minus net debit), no matter how far MON should sink beyond $80. Risk, meanwhile, is limited to the initial premium paid.
Expanding our sentiment scope, we find that bearish bets are par for the course for MON. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.33 ranks in the 94th percentile of its annual range. Or, in simpler terms, option buyers have picked up Monsanto puts over calls at a near annual-high clip during the past two weeks.
As a result, the stock's Schaeffer's put/call open interest ratio (SOIR)
of 1.22 stands higher than all but 6% of comparable readings of the past year. In other words, near-term options players have rarely been more put-biased toward MON.
Technically speaking, the pessimism plaguing MON seems somewhat overdone. The stock has rallied more than 33% over the past year, and has spent most of 2013 consolidating atop the century marker. Should the shares resume their quest for new highs, a mass exodus of option bears could add contrarian fuel to the fire.
This article by Andrea Kramer was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.