Option Expired: Monsanto (MON)

I speculated in Monsanto (MON) on May 13, 2010 and wrote an article backing my thoughts on my action. That speculation turned out to be a complete loss, 100%. While this trade turned out to be a complete loss, I noted that my option contract once bought was considered worthless. This is the nature of the risk in options. Investors and traders should only risk discretionary capital when venturing into options.

The chart below shows the buy point, strike price, and current price.

When I entered this trade, the RSI (top indicator) was at an extreme oversold condition. As a result, I assumed that shares would rebound to at least the $60 range which would allow my Call option premium to be worth more.  Although the RSI moved up from the depressed level, the price failed to do so. A gap down in late May only made matters worse. However, if you expect the worst and you receive the worst, you're at breakeven. That's how I view this trade.

So far, buying Calls or Puts to speculate have proven to be a losing proposition. Using options as a hedge may be a better use but we'll have to wait until the next opportunity arises. The Qualcomm trade, however, is still on track.

Upside Speculation in Monsanto (MON)

As part of the thinking and learning process, I will try to capture as much as I can in option strategies. This lead me to Monsanto (MON) which have be hated by the market and everyone else including columnist at Barron's. We took position in this name around $70 to find it move one direction, down. At $55, I thought I'd take a cheap shot at this stock rebound through an out right Call option.

My goal is not to take delivery of the shares but plan to sell back the options at a (hopefully) higher price. This is because I don't have $6,250 to take delivery of the shares. Using options allow me to risk up front premium which I paid $50 for the right to buy MON anytime before June 18, 2010 at $62.50.

The breakdown
MON @ $55.50
$62.50 Call (June 10') => $0.50

Chart below shows the option data.

I have approximately 35 days for MON to rise 13%. This sounds like a tough task and it may very well be, but MON has fallen 18% over the same period going to 4/7. Roughly speaking, I expect the stock to retrace 60% of the decline. Chart below shows the macro view of MON.

The key to this trade is to consider all your premium to be worth nothing! That's correct, after placing this trade, I consider myself losing $50. If I regained that money back or profit, then I gained. My view is that the loss ($50) is minimal to the potential gain, I am willing to speculate.A quick technical look and you can see that RSI is at extreme oversold of 16.02. Then again, I said the samething to myself at RSI 20.
This trade should resolve much sooner than my previous strategy on QCOM so check back sooner than later - Art