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Bearish Betting Accelerates On Ford Motor Company (F)

Longer-term bears circled Ford Motor Company's December 14 put

by 5/21/2014 9:30 AM
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Ford Motor Company (NYSE:F) was a popular target of both call and put traders yesterday. While the stock's 30-day at-the-money implied volatility (IV) had risen 5.2% by the close to 15.4% -- suggesting increased demand for short-term contracts -- only three of the 10 most active options are expiring within the next month.

For example, the automaker's December 14 put -- Tuesday's second most active F strike -- saw what appears to be buy-to-open activity. Of the 3,694 contracts exchanged here, 85% crossed at the ask price, IV edged higher, and open interest tacked on 3,422 positions overnight -- more than any other Ford strike. Data from the International Securities Exchange (ISE) reinforces this theory.

By purchasing the out-of-the-money puts to open, the traders expect Ford shares -- which finished 0.9% lower yesterday at $15.77 -- to breach $14 by December options expiration. Specifically, these individuals will profit with each step south of $13.57 (strike less the volume-weighted average price of $0.43) the underlying has taken at expiration. However, if the stock is still perched above the strike at the close on Friday, Dec. 19, the buyers risk losing no more than the initial cash outlay.

Given Ford Motor Company's (NYSE:F) technical struggles -- the shares are up a mere 5.5% year-over-year -- yesterday's put buying should come as no surprise. In fact, it's been the dominant trend in recent weeks. Specifically, F's ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio sits at an annual high of 0.65 -- clearly demonstrating the increased attention being paid to long puts, relative to long calls, during the last 10 trading days.

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