Tuesday, August 17, 2010

POT - a vegas trade

BHP launched a hostile bid for POT today for $130 / share

POT's Board of directors rejected the offer.

The stock shot up to $145 pre market and is staying at around 142.28 now.

I decided to sell a DEC short call at 150 for 6.5 credit

My rational:

- Board of Directors of POT is just being greedy and afraid of losing their jobs. BHP's offer is a reasonable offer at a premium of 16% above Monday closing price. Now the stock has shot up much after rejecting the offer.

- It is unlikely that BHP or any other players are to increase the bid. If they do, it will not be >150.

So by selling a longer term call at 150, I am betting that the price will settle around 130 or lower. If the deal is closed, I will make good money from the 3 months' premium.

If the deal is not closed, it is unlikely Potash will go above 150 in the next 3 months.

Also, volatility is very high. So I will also have some edge when the volatility collapse with the SC.

Secondary Exit: This is a vegas trade. I calculate my probability of winning is 3:1. If the stock continues to go higher the next few days and sign of resilience, I may just get out of the trade and take a small loss.
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1 comment:

  1. InnovestorAugust 23, 2010 at 10:56 AM

    It was a vegas trade. It was a wrong trade.

    Judging from all the analysts' estimates, POT will end up >150.

    Price action is still bullish.

    I decided to get out of the trade at a loss.

    Buy to close the Dec 150 SC at 7.5

    Percentage loss: (7.5-6.5)/6.5 = 15.4%

    ReplyDelete

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About Me

An engineer by training graduated with B.Sc (hons) and MBA from Strathclyde university in Glasgow, Scotland. Started as an engineer in R&D for 3 years with Philips. Then, worked with DuPont for 13 years. Last job was VP, Marketing for Asia Pacific. Left to start a number of companies in various segments which include a large electronic distribution, a VoIP provider, an internet trading portal in Australia,and an executive training consultancy firm. Have listed companies in NYSE, Australia Stock Exchange, Singapore Stock Exchange Main Board. I was on the Board of Directors for 1 company listed in Thailand, 1 in Singapore and 1 in Australia. Was in the senior management of a company listed in NYSE. Still holding major share positions in the VoIP and Executive training companies. Both are private companies.

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These articles merely reflect the opinions of this author and are by no means a guarantee of future economic conditions, market or stock performance. Though the author strives to provide accurate and relevant data, he sometimes relies on external sources and cannot assure the reader of the accuracy of these external sources. Additionally, these articles are provided for INFORMATIONAL PURPOSES ONLY and are NOT MEANT to provide investment advice to anyone. For investment advice, please consult your professional adviser.