This Ag play at all-time highs is due for a reversal. How to trade it with options
With agricultural commodity prices facing downward pressure due to oversupply, Deere & Co (DE) is likely to face headwinds as demand for heavy machinery weakens. DE, a leading agricultural equipment manufacturer, has seen its stock rally significantly in recent months, but the recent peak suggests that the uptrend may be losing steam. This creates an opportunity to position for a potential pullback in DE, especially as macroeconomic conditions weigh on the agricultural sector. Trade timing The timing for adding bearish exposure to DE is optimal, as the stock has reached a recent all-time high and is showing signs of exhaustion with bearish divergence on the weekly RSI. While the stock made a higher high, the RSI formed a lower high, indicating weakening momentum and potential for a reversal. This divergence, combined with macro headwinds in the agricultural sector, suggests a pullback is likely, making this an attractive entry point for a bearish trade Fundamentals DE trades at a premium to its industry on a forward P-E basis, which is supported by growth and profitability metrics that exceed the industry average, however, with 6 straight quarters of revenue and EPS declines, there is substantial risk to this elevated valuation. Forward PE Ratio: 28.1x vs. Industry Median 17.8x Expected EPS Growth: 18.5% vs. Industry Average 2.5% Expected Revenue Growth: 7.8% vs. Industry Average 1.2% Net Margin: 13.0% vs. Industry Average 8.9% Bearish thesis Net Sales Decline : DE just posted a 16% YoY decline in sales with every business unit posting double digit declines across the board. Net Income Decline : The most recent quarter just saw a 22% YoY decline in EPS showing the significant challenges in agriculture equipment macroeconomic conditions. Technical Reversal Signal : The bearish divergence on the weekly RSI, with the stock hitting $532.47 while RSI fails to confirm the high, signals a potential reversal and pullback. The trade To capitalize on DE's potential downside, I'm buying a Jun 20, 2025 $530/520 Put Vertical @ $4.48 Debit. This entails: Buying the Jun 20, 2025 $530 put @ $15.73 Selling the Jun 20, 2025 $520 put @ $11.25 The maximum reward is $552 if DE is above $530 at expiration.The maximum risk is $448 if DE is below $520 at expiration. The breakeven point for this trade is $525.52. View this Trade with Updated Prices at OptionsPlay This strategy positions you to benefit from DE's anticipated pullback, leveraging the bearish RSI divergence, overvaluation concerns, and macro headwinds to profit from a potential decline in this agricultural equipment stock with defined risk. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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