Following news of an interesting partnership
with the University of Michigan's Energy Institute, Ford Motor Company
(NYSE:F) was targeted by short-term options traders on Monday. Overall volume finished at a relatively modest 46,000 contracts, and the most active option by far during the session was the October 17 put.
Close to 7,500 contracts traded at that strike, with 51% at the bid price, suggesting that they were sold at a volume-weighted average price (VWAP) of $0.16. Open interest spiked by over 4,000 positions overnight, as well, further communicating the creation of new short positions. By writing the puts to open
, Monday's traders were making neutral-to-bullish bets that Ford -- currently hovering at $17.07 -- will remain perched above the strike price through options expiration this Friday.
If that proves true, the put sellers will retain the premium received (i.e., the VWAP). However, if the underlying breaches the $17 level by expiration, the put writers risk being assigned -- in which case, they may be forced to buy the stock (no matter how low it dips) at the strike price. In this scenario, the maximum potential risk is $16.84, or the strike price less the VWAP, should F bottom out at zero.
Elsewhere, Ford has several notable events on the horizon. The automaker is scheduled to report third-quarter earnings before the open on Thursday, October 24, with Wall Street projecting a profit of $.36 per share. Less than a week later, on October 30, will be Ford's ex-dividend date.
This article by Alex Eppstein was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.