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Agco spread looks to harvest upside

David Russell (david.russell@optionmonster.com)

One big investor wants to harvest the upside in Agco.

optionMONSTER's Heat Seeker tracking system detected the purchase of 5,000 August 50 calls for $6.65 and the sale of an equal number of August 60 calls for about $2.18. Volume was more than 30 times open interest in each strike.

The trade resulted in a cost of $4.47 and will earn a maximum profit of 127 percent if the tractor maker closes at or above $60 on expiration. That's roughly the same level where it peaked in mid-2008 before the subprime mortgage crisis.

AGCO rose 1.06 percent to $52.41 yesterday. It started the year with a bang, surging 19 percent in January, but has been stuck in a range for the last month. Based on yesterday's trade, at least one big investor apparently thinks that it is due for another push higher.

The strategy is known as a call spread because money gained from selling one contract is used to finance a more expensive one that's closer to the money . (See our Education section)

Overall option volume was 29 times greater than average in the session, with calls outnumbering puts by 33 to 1.

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