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Seeds Of Pain

Interesting trade hitting the tape today: A bearish investor made a $1.5 million bet that Mosaic stock would trade below $35 before the third week in September, purchasing over 14,000 contracts of the 35-strike puts. Yikes!!

According to Mike Khouw, "Options Action" star and head of equity derivatives trading for Cantor Fitzgerald, the trade was not done in conjunction with stock. "To put this trade on, you must think something really bad is going to happen soon," said Khouw.


In other words, someone thinks Mosaic stock is a big, steaming pile of, well... fertilizer.

There are a couple fundamental reasons behind the bearishness. According to industry watchers, a weak corn season has depressed demand for nitrogen (a key fertilizer for corn), of which Mosaic is a big supplier.

"Mosaic is very dependant on nitrogen," said Dennis Gartman, author of the eponymous Gartman Letter and known around these quarters as the Commodities King. Moreover, nitrogen prices could be in for a rough summer. Farmers use nitrogen to fertilize corn, but corn-planting season is more or less finished, and nitrogen distributors, who warehouse the stuff, may be loath to hold large amounts of it in inventory, leading to even lower prices. And that could make owning Mosaic a stinking proposition in the near-term.

"There's no reason to own them for the next three months," said Mike Judd, equity analyst over at Greenwich Consultants (SELL).

Questions, comments send them to us at: optionsaction@cnbc.com

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