We are looking at Mosaic Co (MOS) for a July trade. The agriculture stocks rallied with the rest of the commodity stocks as a result of money pouring back into the market. As you can see from the chart, the money has exited these names and has now put them in a better position for us to sell put premium. Selling puts on overbought stocks is difficult. Selling puts on oversold stocks is easier but still somewhat difficult. What strike price do we sell?
The stock is at $43 and change as I write this and the horizontal support from the April lows is just above $35. Do we get aggressive and sell the 40 put strike price for a play expecting a quick bounce up or do we sell the 35 put strike price assuming these will just expire worthless in four weeks? Had the stock not blown through its 50, 89 and 200 dma's in a weeks worth of trading I would suggest being aggressive for a quick opportunity. If it doesn't work we will know quickly. But I am going to be cautious here and sell the 35 strike (symbol: MOS SG).
This is a position we will want to hedge by selling the calls against. Our target price is to sell these at .60 per contract. Our risk management level is a break below $37.08, the April low. At that point close it out. If you choose to be more aggressive and sell the July 40 Puts (symbol: MOS SH), they are currently trading at $1.75 per contract. The risk management on that trade is a close below the 40 strike price.