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Bulls See Upside for Ford Motor Company (F), General Motors Company

Short-term calls are in focus on F and GM following upbeat sales reports

by 7/2/2013 1:11 PM
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Auto sales for June have been rolling in today, and, by and large, most results arrived above expectations. Two companies enjoying positive attention from options players on the heels of the data are Detroit darlings Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM).

Jumping right in... Ford Motor Company (NYSE:F) announced a 13% rise in new-vehicle sales in June, besting analysts' expectations for a slimmer 12% jump. As a result, the stock is up 2.3% to trade at $16.09. Earlier in the session, the equity tagged a new multi-year peak of $16.10. This move to the upside has option players once again targeting the $16 mark, only this time they're picking up Ford Motor's July 16 calls for a volume-weighted average price (VWAP) of $0.32. The majority of the 11,861 contracts traded have done so on the ask side, implied volatility has ticked higher, and data from the International Securities Exchange (ISE) confirms buy-to-open activity. While these calls are currently in the money, in order to be profitable, F needs to move above $16.32 (strike price plus VWAP) by the close on July 19. This is territory not traversed by the stock on an intraday basis since February 2011.

This preference for short-term calls has been a growing trend in F's options pits. Since June 24, Ford's Schaeffer's put/call open interest ratio (SOIR) has dropped to 0.49 from 0.53, as call open interest among options expiring in three months or less surged 20%. Even more telling, this ratio ranks lower than all other such annual readings, indicating that near-term traders are more call-heavy now than at any other time within the past year.

The optimism has spread to the options pits of General Motors Company (NYSE:GM), as well. However, despite a stronger-than-forecast rise in GM's monthly auto sales, the stock is hovering on both sides of the breakeven. Speculators are betting on a move higher through Friday's close, and they're targeting GM's weekly 7/5 35-strike call. Of the 1,020 contracts that have crossed the tape, 61% have done so at the ask price, and only 344 contracts make up open interest here, pointing to the initiation of new bullish positions. The VWAP for the out-of-the-money calls is $0.17, making breakeven $35.17, or 3.4% above the equity's current perch at $34.01. The options market isn't too confident the call will land in the money ahead of Friday's close, as delta for the option is docked at 0.089, or roughly 9%.

As my colleague Alex Eppstein noted yesterday, despite GM's impressive 74.7% year-over-year advance, Wall Street has taken a glass-half-empty approach to the stock. An unwinding of this bearish sentiment could translate into contrarian-related tailwinds for GM down the road.


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