Filed under: Archer-Daniels-Midland (ADM), Options, Technical Analysis, Commodities, Oil, Agriculture

Archer-Daniels-Midland Co. (NYSE: ADM) shares are rising today helped by higher soybean futures. Soy is getting a boost from higher energy prices including crude oil prices. Alternative energy interests are also getting a lift from an energy bill that was passed by the US House limiting subsidies on oil companies. If you think that the company won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ADM.

After hitting a one-year low of $31.28 in August, the stock hit a one-year high of $47.33 in December. ADM opened this morning at $44.99. So far today the stock has hit a low of $44.99 and a high of $46.95. As of 11:15, ADM is trading at $46.05, up 82 cents (1.8%). The chart for ADM looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. This particular trade will make a 6.4% return in just two months as long as ADM is above $40 at April expiration. ADM would have to fall by more than 13% before we would start to lose money.

ADM hasn’t been below $40 since December and has shown support around $45 recently. This trade could be risky if the demand for alternative fuels slows, but even if that happens, this position could be protected by the support the stock might find around $40, where the stock bounced in January.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in ADM.

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This entry was posted on Friday, February 29th, 2008 at 1:13 am and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.