Mosaic (MOS) reported earnings last night and shares fell around 3% at first and stayed in the red in extended hours, but the numbers looked fairly good, and the commentary was positive, so the price action did not align with my thoughts, and also with my earnings preview provided to subscribers earlier that day where the options activity has a bullish bias.
It was not a name I wanted to trade into earnings with an options strategy, but knowing that the sell-off was unlikely to persist, it made Mosaic an easy buy after hours.
Shares closed the regular session today up 3.4%, and touched $61.95 on the upside, after trading as low as $57 last night, a great move off the lows.
Anyhow, it is just an example of how you can follow the options action and do not necessarily need to trade ahead of results, but can trade any reaction to results that does not align with what the action was saying in the week leading up to results.
Here was my Mosaic (MOS) earnings preview to subscribers from intraday yesterday:
OPTIONS RADAR: Mosaic Options Fairly Quiet into Expected Strong Earnings Report
Ticker/Price: MOS ($58.69)
Analysis:
Mosaic (MOS) will report results after the close and 11,700 calls and 6,820 puts are trading as of 2pm, mixed action with no strong price bias on the overall spectrum, a slight negative volatility bias. The Implied Volatility skew looks extremely bullish with OTM calls being bid up in a big way. The largest trade of the day was a buyer of 2,400 January $75 calls with shares at $59. Another trader sold around 500 October $60 straddles. October IV of 52.76% compares to November of 42.86% and is +4.8% today. The largest share trade today was bought above the offer for 15,000 shares. Shares have rallied since the BHP/POT deal was announced, although have pulled back 8% or so the last few days into earnings. The agricultural chemical company trades 14.76X earnings, 3X book and 10.5X cash, also seen as a potential M&A target down the road. Mosaic was started a Positive at SIG with a $76 target on 9-23. China accounts for 20% of global potash demand, while India and Brazil are also big importers, so demand is seen as strong considering the recent strength in those economies, and pricing has improved for this group.
Mosaic (MOS) trades responsible for some of the open interest:
Aug-30: Buyer of 4,050 October $67.50 Calls at $1.21 Offer, More than 3,000 October $60 calls bought around $3.20
Sep-16: October $60 calls with 3,856 bought on the day
Sep 17: 500 Oct 65/55 Bull Reversals Trade
Sep 21: Sellers of 5,813 Oct. 67.50 Calls
Sep-22: More than 4,500 Nov. $55 Puts Sold Bid Side
Trading Strategy: There looks to be a bit of a bullish bias on shares with recent trades, but I am not looking to play earnings, although I would be a buyer on any weakness.
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