Agrium Inc. (NYSE: AGU, Stock Forum) has scored no fewer than four upbeat analyst notes during the past week – the most recent consisting of a “buy” initiation and a $100 price target at Soleil. In the wake of the bullish attention, the shares of AGU have extended their recent quest for new highs, rallying as far north as the $88.83 level in early Tuesday trading.
What's more, the security's upward momentum – and likely Agrium's turn in the earnings spotlight next week – seems to have attracted a slew of optimistic options traders, with calls flying off the shelves at an accelerated pace. During the past couple of weeks on the International Securities Exchange (ISE), AGU has racked up a 10-day call/put volume ratio of 4.26 – in the 92nd annual percentile. In other words, traders on the ISE have initiated bullish bets over bearish at a quicker clip just 8% of the time during the past year.
The bulk of the attention has centered on the out-of-the-money November 90 call, which has added more than 1,800 contracts to open interest during the past 10 sessions. As a result, the 90 strike is home to peak call open interest in the front-month series, with nearly 12,000 contracts in residence.
Meanwhile, the growing affinity for short-term calls is further reflected in AGU’s Schaeffer’s put/call open interest ratio (SOIR), which measures options with less than three months to expiration. Since lingering in the 0.85 region about a month ago, the equity’s SOIR has depleted to its current perch of 0.43 – a 52-week nadir. In other words, near-term options traders haven’t been more call-heavy on AGU at any other time during the past 12 months.
Technically speaking, it’s not difficult to decode the growing adoration of AGU, which has outperformed the broader S&P 500 Index (SPX) by almost 30% during the past 60 sessions. As alluded to earlier, the shares have embarked on a quest for new highs recently, led into the black atop their ascending 10-day and 20-day moving averages.
However, one potential concern is the aforementioned call open interest at the overhead November 90 strike, which could exert options-related resistance in the short term. Furthermore, the security’s upward momentum of late has resulted in a Relative Strength Index (RSI) of 67 – just a hair’s breadth from overbought territory, pointing to a potential pullback on the horizon.
Should the shares of AGU shy away from round-number resistance, or should Agrium fall short of the Street’s earnings expectations next week, the unraveling of high hopes among the analyst crowd and in the options pits could rain on the stock’s parade. A disappointing turn in the earnings spotlight could leave AGU vulnerable to downgrades, price-target corrections, or a reversal in sentiment in the options arena – all potential catalysts lower for the shares.
Disclosure: Andrea Kramer has no financial interest in any of the equities or products mentioned in this column.