Options: Bullish Put Sale in Mosaic

After the close tonight, Mosaic(MOS Quote - Cramer on MOS - Stock Picks) announced its second- quarter results: EPS of $2.15. The initial share reaction was a selloff of less than a dollar to $36.90 from a closing level of $37.67. But at least one option trader was bullish today by selling puts in February.

Today, more than 6,000 of the February 35 puts traded vs. an open interest of just 516. Most of the larger volume in these puts today was on the sell side, and the puts closed around $3.30. The break-evens on these puts for the sellers is $31.70, meaning that the seller will start to lose money if the stock is below $31.70 at expiration.
Watching put activity like this in MOS is a microcosm of the way investors are taking advantage of historically high implied volatility levels right now. With a closing price of $3.30 on these February 35 puts and a stock price of $37.67, that implies a volatility level of 86. Compared to the 63-day historical volatility of 140, that might seem low, but relative to the 60 level of historical volatility in the stock last spring, it is clearly still high. Add to that the fact that the stock has typically held the $30 level for the last three months, and this put-seller is taking advantage of both good break-evens and a potential decline in implied volatility.

Options activity like this does not mean that investors should run right out and buy lots of MOS. But it does provide a glimpse into how investors are using options to put on diverse risk profiles. In order for this put sale to work, the investor does not need the stock to go up. In fact, if the stock rallies more than $3.30, he will wish that he had bought the stock instead of selling the put. But the put sale will pay off even if the stock falls a little, as long as it does not fall too much. After the big rebound in shares of MOS and other fertilizer stocks in the last month, that might be just what this investor is thinking.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.