November 14th Options Now Available For Mosaic (MOS)

The article details two options strategies for Mosaic Co (MOS) shares, currently priced at $34.46. Selling a $32.00 strike put for $0.87 offers a 23.06% annualized return if it expires worthless (69% probability), effectively targeting a $31.13 acquisition cost. Alternatively, a covered call strategy involves buying MOS and selling a $35.00 strike call for $1.40, yielding a 34.45% annualized return if it expires worthless (47% probability) or a 5.63% total return if called away. A notable observation is the $32.00 put's implied volatility of 68%, significantly higher than the $35.00 call's 41% and the stock's 38% trailing 12-month actual volatility, indicating a potential premium for downside protection or perceived higher downside risk.

Analysis

The options market for Mosaic Co (MOS), trading at $34.46, presents a notable volatility skew, signaling heightened perceived downside risk. The implied volatility for the out-of-the-money $32.00 strike put contract is 68%, which is substantially elevated compared to both the 41% IV for the $35.00 strike call and the stock's 38% trailing twelve-month actual volatility. This suggests that options traders are paying a significant premium for downside protection. The article highlights two strategies that leverage this environment: selling the $32.00 put for an $0.87 premium offers either a 23.06% annualized yield on cash if it expires worthless (a 69% probability) or an effective entry point at $31.13 per share. Alternatively, a covered call strategy using the $35.00 strike generates a 34.45% annualized yield if it expires worthless (a 47% probability), but caps the total gain at 5.63% if the shares are called away. The high premium on the put side is the most significant data point, indicating that while the yield is attractive, the market is pricing in a non-trivial probability of a price decline below the $32.00 strike.

Key Decisions for Investors

• Investors with a bullish long-term thesis on MOS could consider selling the $32.00 strike put to either generate a high annualized yield of 23.06% or acquire shares at an attractive cost basis of $31.13, a 7% discount to the current price.
• The elevated 68% implied volatility on the put contract serves as a strong warning of perceived downside risk; investors selling this put must be prepared for potential assignment and holding the stock through a downturn.