American Tower trade sees free money

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AMT AMT rose 1 percent to $42.67 in afternoon trading and has spent the past seven months consolidating between $38 and $45. The owner of wireless towers reaffirmed full-year EBITDA guidance the last time it reported earnings on May 4.

The option trade, known as a ratio spread, is designed to exploit a limited rally in the stock. It will make money if AMT climbs over $45 by expiration, but the gains will erode above $47.50 and turn to losses if it climbs past $50.

Given the shares have never traded above $46.53, the investor apparently thinks AMT will approach that level or move only slightly above it. The transaction is an example of how options can be used to craft strategies to exploit specific expectations of how a company will trade.

Overall option volume in AMT was four times greater than average. Calls accounted for a bullish 93 percent of the activity.

(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 The NASDAQ OMX Group, Inc.

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


This article appears in: Investing , Options

Referenced Stocks: AMT

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