Like a tide that lifts all boats, the market’s recent rally has helped push shares of Potash (POT, $84.71, up $5.31) higher over the past three trading sessions. The stock hit a low of $60 last Friday and has quickly reversed course and held above $80 all day.

On October 21 and 22, I profiled the November 80 calls (PVZKP, $11.30, down $3.50) and the 2010 January 180 calls (WPTAW, $6.10, up $3.50) as high risk/ high reward trades. The November 80 calls have returned 140% as they were trading for $4.70 at the time. The January 180 calls are way out-of-the-money but have value simply because Potash can be an explosive stock. These calls were trading for $3.00 at the time of the blog and have easily doubled.

The trade was balanced so that if the November calls did not perform up to expectations then we still had insurance with the January 2010 calls which do not expire for another 16 months. Today, we got the best of both worlds as Potash looked strong all day.

The market has shown some strength this week and it looks like we may get out of October without another bomb dropping. The short-term oulook is up especially with the election right around the corner. This is normally a bullish time for the market and this rally could continue into next week. However, place stops accordingly, at least 75%-100% above your entry prices.

Rick Rouse
Rick@OptionsMentoring.com

Potash (POT, $67.10, down $6.26) continued its slide today which allowed for some nice entry points for a couple of call option plays. The stock fell nearly 10% and touched a new 52-week low of $63.58 in the process. We can pretty much blame the decline on the horrendous day the Dow had (down 500+) and the fact that everyone is fearing a global recession.

I had mentioned Tuesday night that the November 80 calls (PVZKP, $4.70, down $2.20) and the 2010 January 180 calls (WPTAW, $3.00, down $1.00) were high risk/ high reward trades. Potash opened near $70 and both calls were naturally lower than where they were from Tuesday’s close.

The market downtrend was intact from the opening bell which may have scared some of you away from the trade. That was not the purpose. The trade has been balanced so that if the November calls do not perform up to expectations then we still have insurance with the January 2010 calls which do not expire for another 16 months.

Potash could continue lower and I still think the Dow has another 1,000 to go on the downside so the risks are there. We still have seven more trading days for the month of October and the aforementioned calls could become even cheaper. That is why we are doing half positions on a lot of trades and even hedging a few because I still expect us to test the market’s lows again.

Rick Rouse
Rick@OptionsMentoring.com

It has been tough to watch Potash (POT, $73.36, down $8.18) fall from $240 in June to below a $100 by October, then watch it fall below $70 to a 52-week low of $66. I was on the bull train on the way up to $200 from April through June and even before then. Since July though, we have been standing on the sidelines in hopes of the stock finding a new bottom.

In September when the stock was at $150, I mentioned how it was looking “attractive” but that if it failed $145, Potash could be headed much lower. On October 2, one of my blogs that day was “Potash Going Up In Smoke” with the stock at $97. Two days alone last week the stock went from $105 to $116 to $76. That should be enough to scare anyone away from being bullish but I think we are finally setting up for a good option trade in Potash.

I could bore you with the numbers and tell you what the company is going to make over the next few years or tell you how the price of potash fertilizer is still going for $1,000 a metric ton. The stock is cheap with a forward P/E (price-to-earnings) of 3 but valuations mean nothing in this market. At least not right now.

Just because the stock looks cheap doesn’t mean it can’t go lower. Plus we are in a market that no one trusts and that will take time. Having said that though, I do believe that Potash can rebound from these levels.

The November 80 calls (PVZKP, $6.90, down $4.60) fell 40% today and you could start your research there for a possible trade or you can look even further out. The 2010 January 180 calls (WPTAW, $4.00, down $2.50) also lost about 40% but they do not expire until January 15, 2010 - or 16 months from now. The high for these calls? $96. I’m not saying that these calls will go from $4 to $96 by the time they expire but there was some interest in these options today as nearly 400 contracts traded.

Rick Rouse
Rick@OptionsMentoring.com

From $185 to $98 in 10 days. That’s what has or is happening to Potash (POT, $97.91, down $30.13) today. Blame it on whatever you want but these are unprecedented moves. Talk about throwing the baby out with the bathwater. After all the bullish arguments we have heard from Potash, Wall Street is bailing out of this stock because the dollar is higher today and demand is weakening?

Potash has dropped so fast that the lowest October put option quotes I’m finding are the October 95 puts (PSPVS, $8.40, up $6.95). The October 130 puts (PSPVF, $33.50, up $21.30) which were slightly in-the-money are up 200%. For diehard bulls, the November 120 calls (PYPKD, $9.00, down $12.50) are now 60% cheaper than they were yesterday.

General Electric (GE, $22.23, down $2.27) isn’t in the same business as Potash but its stock is also getting crushed despite Warren Buffett stepping up to the plate again. Latest news out of Camp Buffett is that he is going to buy $3 billion of preferred shares of GE which carry a 10% dividend. He also has the option to buy $3 billion worth of GE common shares for $22.25 each.

Just last week his Berkshire Hathaway company (BRK-A, $138,000, up $1,000) invested $5 billion in preferred Goldman Sachs (GS, $128.67, down $5.83) stock with the same 10% dividend. He also reserves the right to buy an additional $5 billion in Goldman common stock for $115 per share at any time over the next five years.

Add it all up and Mr. B has basically pledged $16 billion to GE and JP. That’s making a statement folks. BTW, the General Electric January 30 2010 calls (WGEAF, $2.00, down $0.20) are getting some action this morning and open interest stands at nearly 100,000 contracts.

Apple (AAPL, $102.08, down $7.04) could be below $100 by the end of the day. I don’t believe in all the hype of Apple hurting because of a slowing economy and consumer spending weakening. When Apple’s iPod Touch went from $399 to $229, I was all over it. I wasn’t worried about the price because I’d rather pay $1.99 for the latest music instead of spending $10 to buy the whole CD. While there are some CD’s that are good from beginning to end, buying the iPod is actually saving me money down the road. Just saying.

I bring these things to light because if you are an investor and your time horizon is five years, these stocks are dirt cheap. Maybe. If you are an option trader, then we can exploit these situations into making huge profits with the right options.

Rick Rouse
Rick@OptionsMentoring.com

Potash (POT, $217.56, up $9.18) is another stock making a 52-week high today. I profiled this company back in mid-April and the May 200 calls. Potash is a volatile stock and one that can make 10-20 point moves on any given day. Today’s big move in Potash is a direct result of an analyst upgrade for Monsanto (MON, $138.16, up $6.56) which is also setting new highs.

The analyst who upgraded Monsanto said the company “will benefit from higher corn prices, larger planted acreage and strong market share.” Potash is a fertilizer that contains high amounts of essential plant nutrients and is used for corn, wheat, and vegetable crops. The upgrade is an indication that demand is still strong.

The May 200 calls that were profiled in April at $6.40 traded to a high of $25 in a little over a week’s time. That trade was a monster and the stock was in a “sweet spot” for option traders to ride Potash higher before earnings. We all know history loves to repeat itself, and traders are enjoying today’s return in the June 220 calls (PJNFD, $7.00, up $3.30) of nearly 90%. It may be too late to join this party but the July 240 calls (PJNGH, $6.17, up $1.87) look like they are taking reservations.

Rick Rouse
Rick@OptionsMentoring.com

Have you noticed the strength in Potash (POT, $182.84, up $0.94) lately? The stock is up 40 points since the beginning of the year and is rapidly approaching the $200 level. I mentioned back in January that this stock had a chance to do something special and it certainly hasn’t disappointed.

The company is set to report earnings on April 24 and made a nice 20-point run when it blew away 4Q numbers. The company reported 4Q earnings of $1.16 share while analysts had expected earnings of $0.97 a share.

There’s a good chance their 1Q is pretty much going to be the same way. Remember, the company also started buying back stock when it appeared like it was headed to a $100. Here is what their CEO said at the time: “What happened these last seven or eight trading sessions was just so ridiculous that we felt, if people are foolish enough to want to sell the stock at a cheap price, then we’ll take it from them”.

I also recommended a “strangle” option trade on Potash in January that did rather well. There’s probably a decent strangle trade that is currently available with Potash but with the momentum as strong as it is it may be worth a look to play the May 200 calls (PYPEX, $6.40, up $0.08) straight up. The April option contracts expire THIS Friday so this would allow you more time to take advantage of a run to $200.

Here is the complete article from January:

http://www.optionsmentoring.com/stockoptions/Potash_Update.shtml

Update on the Airlines: Delta (DAL, $9.00, down $1.48) is getting punished in afternoon trading after opening the session higher. The stock is down a whopping 13% while the April 10 puts (DALPB, $1.10, up $0.70) are up an astounding 175% after opening at 40 cents. Seems now the market is questioning the merger and the industry as a whole after being so upbeat this morning. I called that one right.

Rick Rouse
TheOptionInvestor@yahoo.com