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Bullish Betting Hits Fever Pitch on Ford Motor Company (F)

Ford Motor Company bulls bought August-dated calls on Thursday

by 6/6/2014 9:27 AM
Stocks quoted in this article:

Ford Motor Company (NYSE:F) touched a year-to-date high of $16.89 in Thursday's session, before pulling back to settle at $16.68. What's more, options traders gambled on more upside for the automaker, calling for new multi-year highs within the next couple of months.

By the time the dust settled, F had seen roughly 48,000 calls cross the tape -- a 32% mark-up to its average daily call volume, and more than double the number of puts exchanged. Most active was the August 18 call, where more than 9,000 contracts traded. Almost all of the calls changed hands on the ask side, and translated into new open interest, pointing to buy-to-open activity.

Digging deeper, the calls traded at a volume-weighted average price (VWAP) of $0.13, meaning the buyers will profit if F is perched atop $18.13 (strike plus VWAP) -- representing a new three-year high -- at the close on Friday, Aug. 15, when the options expire. In fact, profit potential is theoretically unlimited north of breakeven, while the net debit represents the maximum risk on the trade.

From a broader sentiment standpoint, yesterday's appetite for F calls merely echoes the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where traders have bought to open more than eight F calls for every put during the past two weeks. The resulting 10-day call/put volume ratio of 8.48 sits just 1 percentage point from a 12-month peak, suggesting buyers are picking up calls over puts at a near-annual-high clip.

Furthermore, short-term speculators are placing those bets at a relative discount. The stock's Schaeffer's Volatility Index (SVI) of 16% stands higher than just 14% of all other readings from the past year, implying that F's short-term options are attractively priced at the moment, from a volatility standpoint.

Technically speaking, F has added 8.1% in 2014, but its 14-day Relative Strength Index (RSI) now sits at 71 -- in overbought territory. In other words, a short-term breather could be in the cards for the equity.

Fundamentally, Ford Motor Company (NYSE:F) earlier this week reported solid U.S. sales for May, and last night said sales in China rose a year-over-year 32%. Things in South America, on the other hand, aren't so rosy, with the firm warning of a "significant" current-quarter loss.

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