CF Industries (NYSE:
CF) shares are trading higher today as bio-fuel related agricultural futures, including
corn and
soybeans are soaring, which is pushing the fertilizer stocks higher. An analyst at Goldman Sachs also raised his price target on competitor
Potash Corp. of Saskatchewan (NYSE:
POT). If you think that the stock 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 CF.
After hitting a one-year low of $44.16 in August, the stock hit a one-year high of $159.00 in April. CF opened this morning at $149.99. So far today the stock has hit a low of $149.99 and a high of $154.52. As of 12:45, CF is trading at $154.37, up $7.70 (5.3%). The chart for CF looks bullish and deteriorating slightly, while
S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bullish hedged play on this stock, I would consider a July
bull-put credit spread below the $115 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. This particular trade will make a 5.3% return in just six weeks as long as CF is above $115 at July expiration. CF would have to fall by more than 24% before we would start to lose money.
CF hasn't been below $115 since early April and has shown support around $122 recently. This trade could be risky if the prices for oil fall and agricultural futures follow in the coming weeks, but even if that happens, that position could be protected by support the stock might find just above $120, where it bottomed out in May.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in CF.