Potash Options Move Higher

Potash Corp. (POT) shares surged higher last week, but the real story was in the options. Some 55,022 call options traded hands, which is more than 2x the average daily volume of 24,375 contracts. The majority of the action was centered around the September $150 to $160 strikes, suggesting that shares are headed north during the next 14 days. In-the-money October $150 and $160 strikes also saw substantial trading activity with a bullish bias.

Shares of Potash are down nearly 50% from their 52-week highs amid worker strikes, supply shortages, and a lower dollar. However, agricultural companies like Potash Corp rose sharply on Friday amid a broad recovery in the commodities market. Potash prices are still on the rise, hitting $760 a ton from just $520 a ton in June. Meanwhile, the firm is trading with a forward multiple of 7x earnings - a cheap price for a company with strong growth.

Last quarter, profits at Potash tripled on these higher potash prices. However, production at its Cory mine has stopped due to strikes that began last week and no new talks have been scheduled. This mine along with others affected account for 30% of the company’s total output and about 6% of global capacity. As a result, the strikes will likely lead to improved margins but lower gross sales. The actual bottom-line affect is the cause for concern and investors remain undecided.

Potash Corporation is an integrated fertilizer and related industrial and feed products company. The company’s potash is produced from six mines in Saskatchewan and one mine in New Brunswick. Of these mines, it owns and operates five in Saskatchewan and the one in New Brunswick. Its nitrogren operations involve the production of nitrogen fertilizers and nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid.

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