CF Industries (CF - option chain) stock is trading lower today after the situation surrounding two takeover deals continues to get murkier. Agrium (AGU) announced this morning that CF's stockholders tendered 62% of their shares into a hostile takeover offer launched by AGU. AGU extended the offer, which originally was to expire yesterday, to December 18. Meanwhile, CF's board said that it does not believe that the tender results reflect stockholder support for Agrium's offer. At the same time, Terra Industries (TRA) is fending off a hostile bid made by CF. The uncertainty surrounding this situation is holding back CF shares and if you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on the stock.This morning, CF opened at $83.60. So far today the stock has hit a high of $82.50 and a low of $84.48. As of 11:50, TRA is trading at $82.71, down $3.58 (-4.2%). The chart for CF looks neutral and S&P gives CF a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $100 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 9.9% return in two months as long as CF is below $100 at January expiration. CF would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.
CF hasn't been above $100 at all in the past year and has shown resistance around $95 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer 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 CF, AGU, or TRA.
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
11-19-2009 @ 7:30PM
say what? said...
The AGU offer for CF is $45 cash + 1 share AGU. At 11/19 close, that's $102.19 If TRA shareholders reject the CF board candidates tomorrow, CF mgmt may be forced to throw in the towel and do the deal with AGU.