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Potash Corp (POT) diagonal Spread

Another trade I am planning to take is a long term diagonal spread on Potash Corporation (POT). The stock recently (on multi-year chart) had run to a multiyear high at the beginning of 2011 and then it corrected down to around $45 a share.

Potash Corporation of Saskatchewan Inc. produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. The company mines and produces potash, which is used as fertilizer. It also offers solid and liquid phosphate fertilizers; animal feed supplements; and industrial acids that are used in food products and industrial processes. In addition, the company produces nitrogen fertilizers, as well as nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate, and nitric acid.

There will always be a great demand in food industry and Potash plays a significant role in this process.

Therefore in the longer term I think this stock will go higher. But over time. There may not be a huge upward run in the nearest time, so I am planning to take a diagonal spread using LEAPS Jan 2013 calls and sell against it December 2011 50 calls. This will reduce the cost of my January calls and it will work as covered calls – producing income (hopefully) during the lifespan on January 2013 LEAPS.

For this short term period, I expect the ideal landing spot to be at or around $50 at expiration in December. If the stock expires, I can re-sell another calls against the January LEAPS. I may be able to open some spreads as well to produce income. If the stock rises above $50, I will have to buy December calls back, but my January LEAPS will increase in value in s faster pace to pay for this buyback.

So I placed an order for the following tomorrow opening:

1 BTO January 2013 45 calls
1 STO December 2011 50 calls
Limit debit: $7.80 per spread





2 responses to “Potash Corp (POT) diagonal Spread”

  1. Joe says:

    Good stuff about stock market and investing here. Thanks

  2. Otto Hanke says:

    You actually make stock or options trading seem really easy together with your presentation but I find this matter to be actually one thing that I think I might by no means understand. It kind of feels too complicated and extremely huge for me as a new trader or investor. I’m having a look forward on your subsequent publish, I will try to get the dangle of it! Sorry for English. I speak German only.

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