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Buyers think Agco isn't done moving

David Russell (david.russell@optionmonster.com)

Agco jolted higher on Tuesday, and the bulls returned to the name yesterday.

optionMONSTER's Heat Seeker tracking program detected the purchase of more than 2,000 May 55 calls for $1.60 to $1.70. Volume was 23 times greater than the strike's open interest at the start of the session, indicating that new positions were initiated.

Those long calls lock in the price where investors can buy shares in the maker of farm equipment, so they can generate some nice leverage on a percentage basis if the stock continues to climb. But if the shares don't move, the contracts will lose value over time and eventually become worthless.

AGCO fell 0.57 percent to $48.89 yesterday but is up 6 percent in the last week. Most of that those gains occurred after the company said at an investor conference it would earn $5.50 to $5.75 a share next year. The midpoint of that range was higher than the average analyst $5.56 forecast at the time.

That news sent the shares back to the top of their trading range since the spring, and yesterday's call buyer apparently thinks that they're getting ready for a breakout. Even if the stock doesn't rally, the trader will have much less capital tied up than he or she would owning common shares. (See our Education section for more on how to options can be used to manage risk.)

More than 3,000 contracts traded in the session, almost quadruple the average amount. The Heat Seeker showed calls outnumbering puts by a bullish 5-to-1 ratio.

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