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Bullish spread plays calendar in ADT

Chris McKhann (chris.mckhann@optionmonster.com)

A bullish spread tops today's option activity in security company ADT.

optionMONSTER systems show that a trader bought 6,047 of the January 48 calls for $2.10 and sold the same number of the October 48 calls for $1.05. The volume was more than 10 times the previous open interest at each strike, indicating new activity.

Calendar spreads such as this take advantage of the greater time decay of the nearer-term options. In this case the sale reduces the cost of the longer-dated options by half and has a maximum risk of $1.05 up until the first expiration.

This spread has a bullish bias as it is well out of the money. It will take a maximum profit if ADT is right around that $48 level at the time of the first expiration in October. (See our Education section)

ADT is down 1.62 percent to $41.34 in afternoon trading, following a big gain yesterday. Shares were above the $48 level at its highs in March and were down at support at $38 a month ago.

About 16,200 ADT options have traded so far today, already more than quadruple its total daily average for the last month.

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