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Swamp Gas! CF Stock Pops Like a Helium Balloon (CF)

Posted on October 6, 2021

We’re coming at you early this week, because this one’s too good to miss.

It’s a straightforward, short-term SPECULATIVE play on our good friends at CF Industries Holdings Inc. (NYSE:CF), producers of what Wall Street terms ‘agricultural inputs’ – another term for chemicals that aid in the growth of produce while killing people and animals.

But never mind all that!

There’s money on the table.

Potentially…

Fundamentals

Let’s take a quick look at the numbers –

  • First, P/E is 28.65 (compared to an industry average of just 18),
  • Dividend yield is a healthy 1.99%,
  • Price to book is a borderline 4.01,
  • EPS for the past year declined by 33.80%,
  • EPS for NEXT year is expected to grow by a puny 0.20%, and
  • Insiders unloaded $11 million in stock earlier this week, when the UK government bailed out the company!

Crazy story, it is.

The U.K. Parliament agreed to subsidize CF’s business because rising NatGas prices made their local operations unprofitable.

CF provides the UK with 60% of its “food-grade carbon dioxide”, used in the slaughter of animals, carbonating soft drinks and sustaining the “freshness” of myriad store-bought foods.

That stoked some helium-like buying, that’s now gotten way out of hand.

As those same insiders will surely tell you.

Take a look at the chart –

Technically, we’re facing…

  1. An overbought RSI read (in green) that coincides with the UK government’s announcement (and the insider selling),
  2. MACD topping out,
  3. A volume spike at the highs (in black), often indicative of a key reversal day,
  4. And all this at the end of a better than 40% run that took only eighteen trading days to transpire (in red), and
  5. Left gaps that need filling at 49 and 51 (in blue).

Meaning…

It don’t look good.

And we’ve got a calendar spread lined up to exploit it.

Like this –

A Jew and His Gold recommends you consider selling the CF October 8th 60 PUT for $1.20 and buying the CF October 15th 60 PUT for $2.05.  Total debit on the trade is $0.85.

Rationale: the trade, as mentioned, is speculative.  It’s got a ten day lifespan, but requires no margin (in most brokerages) to place.

We’re betting on little to no movement in the stock over the next 48 hours, and then a whole lot more before next week’s expiration.

Maximum gains and losses are too difficult to determine for calendar spreads like this one.  Suffice to say that if you leave everything alone until the 15th of the month, you can’t lose more than your original debit of $0.90.

That’s not to say we won’t act before then – but if we do, it will be with proper safeguards in place, as always.

Stay tuned.

And may the G-d of Abraham, Isaac and Jacob ever be your guide.

Many happy returns!

Matt McAbby

 

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