Playing AGU’s Earnings

Plus: Friday’s Freak Recovery

PLAY: Buy the AGU March 60 Calls (O:AGU 10C60.00) at or under $3.30 (or best price), good for the day. Then, also buy the AGU February 55 Puts (O:AGU 10N55.00) at market, good for the day. Do not place a stop limit or sniper sell at this time.

Dear Bottarelli Research Member,

Good morning. As you can see from the Dow chart below, the Blue Chips were on the verge of closing Friday’s trading session right around the 9,800 level, which would have been a brutal 500-point drop over two trading sessions. But as you can see from the closing-day candlestick formation, the markets put in a surprising rally within the last 30 minutes on Friday, which recovered all of these losses.

What was the catalyst for this recovery? Well, to be honest, there wasn’t one.

In my view, this was a classic example of federal money being pumped into the markets to avoid more panic selling. With no discernible catalyst, there isn’t a single investor, hedge fund, or mutual fund in the country that would buy into a 150-point drop with 30 minutes left on a Friday afternoon trading session. Therefore, I’m pretty convinced that this out-of-nowhere recovery was another example of our tax dollars being put to use to avoid investor panic. In my humble opinion, as long as our current governmental leaders remain in power, this type of market manipulation will be here for good. As always, I’ll continue doing my very best to navigate through these choppy waters.

Switching gears, we have a looming earnings announcement from global agricultural nutrient firm Agrium (AGU – NYSE). AGU’s Web site says that their earnings will be released tomorrow at 11:30 AM ET, but these afternoon announcements always seem to leak out pre-market.

From a historical perspective, my staff has learned that past earnings announcements have all pushed AGU shares $8.00 to $10.00 higher within a month – sometimes two weeks. This upside move is understandable because as we’ve seen in the past, potash-firm CEOs seem to have the magic touch when it comes to convincing investors that their sector has bottomed out and is ready to ramp higher. Plus, with AGU falling from $70 down to $60 over the last month, it appears like most of the bad news has been priced into the stock.

Given this situation, here’s what I’d like to do…

First, I’d like to appeal to the more speculative crowd by taking a calendar spread play. That is, I’d like to add March calls on AGU, which will shoot higher if AGU pops off any strong earnings news. But just to hedge ourselves, I’d also like to add AGU February puts. That way, we’re getting positioned to the upside going into earnings but we’re also using cheap February puts as a safety net. Of course, our bias will still be to the upside, so we want AGU to move higher. The February puts are designed to soften the blow if we see a sharp decline.

To tell you the truth, if AGU moves up in today’s session (in advance of their earnings report), we could always sell the March calls for a gain, and then hold the February puts for a lottery-ticket type of play going into tomorrow. But we’ll cross that bridge once we enter the play and see how AGU moves. As a more speculative play, the first step is to get yourself positioned now! Here’s the play…

PLAY: Buy the AGU March 60 Calls (O:AGU 10C60.00) at or under $3.30 (or best price), good for the day. Then, also buy the AGU February 55 Puts (O:AGU 10N55.00) at market, good for the day. Do not place a stop limit or sniper sell at this time.

At the same time, also continue holding your APOL March 60 Puts (O:APOL 10O60.00) and your CTRP February 32.50 Calls (O:CTRP 10B32.50).

And as always…

Lock and load!

Sincerely,