If fertilizer stinks, then Terra Industries (TRA) reeks of opportunity. Flooding in the midwest has hurt the corn crop. It seems logical now that farmers will shift acreage back into fertilizer-intensive corn for the Spring of 2009. This would suggest that TRA, a producer of various fertilizers, will experience a boost in earnings. Indeed, last week the corn destruction served as a rich manure for TRA stock, sending it up like a magic bean stalk. The best opportunity here is probably a long position of some sort on a near-term pull back. A bull vertical spread on TRA could have some appeal to the speculator. One example would be the January 2009 55/60 bull call vertical. This involves buying the 55 call and simultaneously selling the 60 call short. This should produce a risk to reward of about 1:1 or perhaps a little better. For the owner of TRA stock, a protective put would be a reasonable profit-locking move. If the owner of TRA stock wouldn't mind holding on to the stock, but would gladly sell at a premium to current prices, he might consider shorting a call against the equity position as a means of potentially exiting the stock; that is, the stock owner is attempting to have the shares called away and at a more favorable price thanks to the call option premium retained. If, in this example, the stock does not get called away, at least the owner would have lowered his cost basis. The economy has a yin-and-yang quality about it. Painful loss in one area (crop destruction) invariably creates pleasurable gains in another area (just ask a TRA shareholder). Whenever there is obvious pain in the markets, start looking for the pleasure points. I assure you, they are there.
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After the Floods - Fertilizer for the Corn Crops
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