Climb on American Tower Via a Long Call

by John Kmiecik | May 21, 2012 8:00 am

Climb on American Tower Via a Long Call

It’s not easy to find a potential bullish option play in this rather bearish environment. In fact, it probably isn’t easy to find even a bearish option play with many stocks being extended to the downside. Here’s a potential trade idea on American Tower (), a stock that has had a bullish run-up but now has declined to an area where it might just be able to make a move higher once again.

American Tower ($64.42): Long Calls

The trade: Buy the June 65 calls for $1.70 or less.

The strategy: Buying a call is an option strategy that can take advantage of a bullish outlook on a stock. A long call can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is essentially unlimited with a long call because the stock can continue to rise, and the maximum loss is $1.70 if AMT finishes below $65 at June expiration. Breakeven is at $66.70 at expiration.

The rationale: AMT operates as a wireless and broadcast communications infrastructure company. It has pretty solid fundamentals, including strong revenue growth and a decent record of earnings-per-share growth. As of last week, 17 analysts rate the stock as a buy, and one rates it as a hold. No analysts has a sell rating.

What makes this trade idea compelling is the technical setup. The stock had been caught in a range for about three months between $62 and $64. Toward the end of April, it broke resistance at $64 and moved higher to about $68.

But last week’s bearish market has brought the stock back to its old resistance level, which now can be considered support. If support holds, AMT may head back higher again to $68.

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