Downside play on America Movil

By David Russell,

Shutterstock photo

America Movil is showing signs of rolling over, and one investor is preparing for a drop.

optionMONSTER's Depth Charge tracking system detected the purchase of 4,000 August 49 puts on the Latin American telecom for $1.67. At the same time, 6,000 August 45 puts were sold for $0.65, resulting in a total debit of $0.70 per put contract bought.

AMX Chart AMX is trading a penny higher this morning at $49.68, having largely moved sideways for the last 10 months as it attempts to break through the key $50 level where it traded immediately before the 2008 market crash.

The overall chart pattern has been bullish, with the stock making incrementally higher lows and holding above its 200-day moving average (purple line). However, today's option trade is looking for a push lower.

The strategy, known as a ratio spread, uses the additional income from selling more downside puts to reduce the cost basis and increase leverage. It will produce a maximum profit of 470 percent if AMX closes at or below $45 on expiration.

Given the larger short position in the August 45 puts, gains will erode below that level and turn to losses under $37.

Overall options volume in AMX is more than twice the average level today, with puts outnumbering calls by 30 to 1.

(Chart courtesy of tradeMONSTER)

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

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: AMX

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