Harvest a Profit With Monsanto Calls

The earnings schedule is running very thin this week, with just a handful of notable names on the docket.� One of them is Monsanto (NYSE:MON), the fertilizer and seed giant.� We�re not big fans of the agriculture stocks these days, as most have been pummeled by rising costs and reports of bumper crops.� But we are seeing something in MON that we like — at least for a couple of days.

Monsanto reports earnings Wednesday before the bell, with analysts expecting a loss of 27 cents a share, compared to a loss of 9 cents a year ago.� The company has beaten the past three such estimates, so overcoming the current rock-bottom expectation shouldn�t be a problem.�

Here�s the thing about MON and earnings:� The stock typically is very strong after reporting.� The shares have gained ground after three of the past four reports, averaging a robust 9.1% in the subsequent week.�

The stock is currently bouncing off the $60 level and was one of the few equities to show strength amid Monday�s weak market.� The shares, which were up about 1% on Tuesday to $60.67, are oversold after plummeting as much as 23% from their July high.� The $60 level provided some support last November and December, so there is some precedent for the importance of this level.

Sentiment toward MON is mixed.� Short interest is negligible, while two-thirds of covering analysts rate the stock a buy.� That seems a bit high given the stock�s recent performance,� but the put/call ratio is coming off a peak, indicating that some pessimism could be unwinding into buying pressure.

We know that agriculture stocks, including MON, have been major underperformers over the past couple of months.� The sector has been beset by high corn yields and high input costs for fertilizers.� But a lot of that negativity has clearly been priced into these stocks.

We�re not telling you to go run out and buy a bunch of MON shares as a cornerstone of your portfolio.� But we are saying that the stock appears poised for a bounce after being sold off.� And earnings could just be the catalyst, given the low expectations for the company this quarter and the recent post-earnings price performance.� Buy the October 60 call for $3.50 or less.