Increasing prices is always difficult. You run the risk of customers either not buying your product or searching for a new farm land near bangalore. What Potash basically said was “we don’t care.” Now think about this for a moment. If you can push through a major price increase on your best customers, then you have substantial power in price negotiations. This means there’s more demand than supply in the market place.
So what does this all boil down to? I’m trying to figure out if Potash is going to make their numbers on Thursday. Something tells me they will. I think not only will they make their numbers; they’ll beat ’em.
Lots of people already see what we see. This big home run may already be priced into the stock. If that’s the case, the stock might go nowhere on the news. It might even go down. And of course there’s the wild card. You never know what management is going to say about future expectations. They could throw everyone a curveball and the stock might get destroyed.
The last time Potash announced earnings was back in January. The stock traded as low as $105. A few days later it had rallied to $144. Of course they announced record revenue, EBITDA, and profits.
Buying calls on Potash is one way to profit if the stock jumps in value. I looked at the short term options. Right now, you can buy May calls on Potash with a strike of $210 for about $15 each. If you put on this trade, you’d profit when the stock rallied above $225. That’s a $28 point move in the stock.
I know what you’re thinking, these options are expensive. They are. There’s an advanced options trading technique that can lower your cost dramatically, but it also limits your profits. It’s known as a Call Bull Spread.
First you buy a close to the money call option and at the same time sell a call option at a higher strike price. Your maximum profit would occur when the stock trades above the higher strike price. It’s a way to potentially gather some profits, but remember, if the stock doesn’t move in the right direction, you can lose your entire investment.
As with any option trade there are risks. Make sure you’re comfortable with and fully understand the risks and rewards of every trade – before you buy a position.
Brian Mikes is the editor of the Dynamic Wealth Report, a free investment newsletter that offers investment ideas and news you can’t get from the mainstream investment press. Brian and his team bring decades of Wall Street and Silicon Valley experience to help you discover profitable trading ideas you can use today.
