Archer Daniels Midland Co. (NYSE: ADM) shares are trading higher today as corn futures are trading higher. Corn futures are being sent up by rising oil prices, which increase demand for corn ethanol. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ADM.After hitting a one-year low of $30.20 in January, the stock hit a one-year high of $45.30 on Monday, which it has surpassed again today. ADM opened this morning at $44.99. So far today the stock has hit a low of $44.95 and a high of $45.99. As of 11:15, ADM is trading at $45.75, up $0.76 (1.6%). The chart for ADM looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $35 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in just 6 months as long as ADM is above $35 at June expiration. ADM would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.
ADM hasn't been below $35 by more than a few cents since October and has shown support around $38 recently. This trade could be risky if the price of oil drops off and demand for bio-fuels falls, but even if that happens, this position could be protected by the support the stock might find at $35, at its 200 day moving average.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer (of no relation to the ADM) owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ADM.
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Reader Comments (Page 1 of 1)
12-28-2007 @ 10:37AM
Kelly H said...
Will this stock split? Its been awhile since this happened. I hope it does!!!!