Calling for upside in American Tower (NYSE:AMT)

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American Tower Corp. (NYSE: AMT ) did not announce any news today to account for the pop-up in the stock so far on the day, and heavy call volume during today's session suggests at least one investor expects upside and declining implied volatility during the next few months.

AMT shares gained more than 1% during midday trading to $42.75. The wireless communications name has not announced its next earnings release date, but the market expects the report around July 28. The stock is currently trading up more than 10% since its recent low of $38 at the beginning of May, and options action on the tape today suggests an investor expects the stock to climb another 11% throughout the near-term.

At 11:02 a.m. EST, a block totaling 6,000 out-of-the-money (OTM) October 47.5 calls changed hands simultaneously with 3,000 OTM October 45 calls thanks to an investor who traded a call ratio front spread. The 47.5-strike calls are home to current open interest of 381 contracts and current open interest of the 45-strike calls is 459 contracts, indicating the investor most likely opened this spread position. The lower-strike calls crossed the tape for $2.10 per contract (the ask price at the time of the trade) while the higher-strike calls changed hands for $1.05 per contract, which was closer to the bid price when the trade hit the tape. This options action suggests the investor did not pay or collect anything to put on the ratio spread, and will make a total maximum profit of $750,000 if AMT shares are trading right at $47.5 at October options expiration. If the stock is trading between $45 and $50, this investor will make money. If, however, AMT shares are trading higher than $50 at October options expiration, this investor loses $300,000 for every dollar the shares are above the $50 level.


For a visual of the risk/reward dynamics of this call one-by-two front spread, open a free virtual trading account today and build a profit/loss graph. If you are a stock investor looking to get long or short AMT, I invite you to save money on your trades with $2.95 flat-rate stock trades available at OptionsHouse .

Implied volatility of the October 45 calls is 28% while the October 47.5 calls have an implied volatility of roughly 26% compared to the stock's 30-day historical volatility of 33%. Because the investor is short twice as many options as they are long, this trade will actually benefit if implied volatility declines. The CBOE S&P 500 Volatility Index (VIX) is currently down more than 7% so far today. If that trend continues and it bleeds over to individual stocks, this AMT trade could be a winner in the short term even if the stock stays below $45.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Options

Referenced Stocks: AMT

Jud Pyle

Jud Pyle

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