Potash Corp./Saskatchewan (USA) (POT): Ag Stock’s Rebound Could be Your Ticket to 122% Profits

The options Greek delta approximates the odds that an option will be in the money at expiration. It is a measurement of how well an option follows the movement in the underlying security. You can find an option’s delta using an options calculator, such as the one offered by the CBOE.

With Potash Corp./Saskatchewan (USA) (NYSE:POT) trading at about $37.90 at the time of this writing, an in-the-money $30 strike call option currently has $7.90 in real or intrinsic value. The remainder of the premium is the time value of the option. And this call option currently has a delta of about 85.

Rule Two: Buy more time until expiration than you may need — at least three to six months — for the trade to develop.

Time is an investor’s greatest asset when you have completely limited the exposure risks. Traders often do not buy enough time for the trade to achieve profitable results. Nothing is more frustrating than being right about a move only after the option has expired.

With these rules in mind, I would recommend the Potash Corp./Saskatchewan (USA) (NYSE:POT) Jan 2015 30 Calls at $9 or less.

A close below $30 in Potash Corp./Saskatchewan (USA) (NYSE:POT) on a weekly basis or the loss of half of the option’s premium would trigger an exit. If you do not use a stop, the maximum loss is still limited to the $900 or less paid per option contract. The upside, on the other hand, is unlimited. And the January 2015 options give the bull trend more than a year and a half to develop.

This trade breaks even at $39 ($30 strike plus $9 options premium). That is only a little more than $1 above Potash Corp./Saskatchewan (USA) (NYSE:POT)’s current price. If shares hit the breakout target of $50, then the call options would have $20 of intrinsic value and deliver a gain of more than 100%.

Recommended Trade Setup:

— Buy POT Jan 2015 30 Calls at $9 or less
— Set stop-loss at $4.50
— Set initial price target at $20 for a potential 122% gain in 18.5 months

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This article was originally written by Alan Knuckman and posted on ProfitableTrading.