Ford Motor Company Flooded With Front-Month Call Activity

Schaeffer's Investment Research
  MAR 11, 2013 3:00 PM

Ford call players head to the near-term options pits.

 


Ford Motor Company (NYSE:F) has been ambushed by bullish speculators today, as roughly 146,000 calls have changed hands so far. This is more than triple the equity's expected intraday call volume, and about five times the number of puts traded. Receiving the most play is the March 13.50 call, where over 41,700 contracts have crossed the tape -- 95% of them off the ask price, signaling buyer-fueled volume.

More specifically, these calls were exchanged at a volume-weighted average price (VWAP) of $0.03. Because this option presently carries open interest of just 50 contracts -- and implied volatility has climbed 6.5 percentage points during the course of the session -- it can be assumed that new positions are being added here. In order for traders to realize a profit on these bought-to-open calls, F must surmount the $13.53 level (strike price plus VWAP) by front-month expiration, which occurs at the close this Friday.

This uptick in call volume is more of the same for the auto giant. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 20-day call/put volume ratio of 2.64 for F. Or in simpler terms, calls bought to open have more than doubled puts during the past month. However, this heavy accumulation of bullish bets could end up translating into options-related resistance down the road.

What's more, short interest on F declined by nearly 44% during the past two reporting periods, and now accounts for just 1.4% of the equity's available float. It would take less than two days to buy back these shorted shares, at the stock's average pace of trading. In other words, the security is unlikely to benefit from any future short-covering activity.

This optimism toward F seems rather unfounded, considering the stock has tacked on less than 3% year-to-date, and has lagged the broader S&P 500 Index (INDEXSP:.INX) by almost 11 percentage points during the past 40 sessions. Still, even if the equity fails to rise north of the 13.50 strike by expiration on Friday, the most today's call players have at risk is the premium paid.

This article by Terri Stridsberg was originally published on Schaeffer's Investment Research.

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