I bought some stock of Monsanto (MON) not too long ago on the belief that the stock had dropped a lot and was near its support of around $65 per share. To my dismay the stock has continued to fall even below $60 per share, and today finished down 2.8% to close at $57.52 per share.
This is the type of event that brings the value of collar trades and covered calls to our attention. There was an article in the influential Barron’s magazine this past Saturday on the prospect of Monsanto stock moving forward. A case was being made that Monsanto could slide some more in the next few weeks as the earnings are in question due to several fundamental events, least of which is their weedkiller product is not actually killing all the weeds! Farmers are having to go out and buy Monsanto’s competitors’ weedkiller because some crops are developing a resistance (surprise) to Monsanto product.
This is a new development and highlights the importance of following and understanding the reasons why your stock is moving…up or down. Based on the Barron’s article and the technical weakness in Monsanto’s chart, I placed a collar trade around my stock to protect it from further drop. Since I placed my collar yesterday, Monsanto has dropped from $61 Monday morning to $57.52 at the close today. On my 200 shares I should have lost $3.48 per share or about $700 in the last two days…yet I am down only about $30 because of the collar.
Thank you Collar trade!