Ag Plays – The Beans or the Business?
by ilene - September 12th, 2010 4:03 pm
Ag Plays – The Beans or the Business?
Courtesy of Joshua M Brown, The Reformed Broker
Farmer Brown here again. One of my key longer-term themes for growth investing is and has been the Agriculture Play for a few years now. The global demographics, while seemingly moving at a glacial pace to the short-term thinkers, are simply undeniable over the intermediate to longer term.
A recent landmark piece of research from Goldman Sachs suggests that stock market capitalization in emerging countries may grow fivefold over the next 20 years to more than $80 trillion. Keep in mind that this is the same research department that nailed owning the BRIC country stocks as the Market Call of the Last Decade.
More prosperity reaching the developing world (a majority of the earth’s population) means a historic shift in the world’s diet from simple grains to meats. The first thing a Third World peasant farmer-turned-industrialist goes upscale on is his food. And once you go chicken and beef, it’s mighty hard to go back to sprouts. Unless you think that globalization and gentrification will reverse, this shift probably represents the most monumental investing opportunity of our lifetime.
The theme is becoming a well-known one, but now we’ve reached the juncture where we must ask the age old question of "What’s the trade?". If there was one takeaway from the book The Greatest Trade Ever, it’s that lots of folks saw the housing and mortgage crash coming, but only a few figured out how to express that awareness into a profitable trade.
The Ag Story is every bit as fat a pitch coming down Broadway for investors as the real estate crash was. The flash food riots that rippled around the globe briefly in early 2008 were likely a mere preamble to something much bigger, but how do we set ourselves up for it? The considerations here are getting the timing right, owning the correct vehicles, staying perspicacious in the event that the winners start breaking away from the pack early and, finally, having enough bases covered that you don’t nail the theme but miss the upside (also known as mis-expressing the trade).
Gradually, there are three schools of thought emerging on how to play the Ag Trade. I will give you a brief idea of what they are and then encourage you to do your own research, as…
Trade Rewind: Anatomy of Our Winning Ag Plays
by phil - May 16th, 2009 8:28 am
A lot of mail we get from people interested in our service had the question: "Are option trades as easy to follow as stock trades?"
I think the quick answer to that is yes for straight options and no for spreads but like many things that are worth doing, they are worth learning. I'm going to start a new teaching series here so we can analyze some trades after the fact as practice may make perfect but it also pays to go over our winners as well as our mistakes as finding out where we went right is as important as finding out where we went wrong. Trading has, of late, become much less about the merits of the particular stock and more about the timing of your entries as good stocks and bad stocks can move up and down 5% on any given day.
One of the things we like to do is watch for overbought sectors to short. We had been taking pot-shots at POT all week as it was really running away with itself and on Thursday I discussed with members how the whole sector was getting overbought and, in Friday morning's post I said: "I advocate more shorts into the open if they insist on this ridiculous pre-market pump (down just .25% at 9 am), especially in the over-hyped Agriculture industry, which could not be up for stupider reasons," which neatly summarized my outlook on the sector.
We got exactly the pump action we wanted in the morning and I sent out a 10:34 Alert to Members, sensing that we were topping out on the run in the indexes and I recommended the following plays:
Big disconnect with DBA and AGU, MOS and POT now. It’s a little crazy to do a day trade but the POT $115 puts have .20 in premium at $6.10 and you can sell the $110 puts for $2 if it turns against you. I like the June $90 puts on them for $1.95, looking for $1 and rolling up if it goes the other way at .85 per $5.
AGU July $40 puts are $1.05. MOS $50 puts are a fun day trade for .10 but you need to get 3/4 out at .15 and leave the 1/4 or 1/2 out at .20 and