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Earnings Strike Fear into Ford Motor Company (F) Option Traders

Put buying in F shares has increased in recent weeks

by 4/23/2013 12:24 PM
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With quarterly options looming on the horizon, Ford Motor Company (NYSE:F) speculators have grown increasingly pessimistic, focusing on the put side of the fence. The stock's Schaeffer's put/call open interest ratio (SOIR) recently zoomed up to an annual high of 0.90. In other words, put open interest (relative to call open interest) is higher now than it's been in the last 12 months for options expiring in three months or less.

In a similar vein, put buying has been more popular than usual at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The 50-day put/call volume ratio of 0.41 indicates that 41 puts are being purchased to open for every 100 calls. While this might not seem to reveal a predilection for puts, the ratio is higher than all but 2% of the past year's readings. In short, long puts have been in increased demand on a relative basis, compared to what is typically seen in the Ford Motor Company option pits.

Meanwhile, on the charts, F is sitting just above breakeven year-to-date, at $13.44, and has gained close to 18% during the last 12 months. Additionally, the shares have retaken control of their ascending 20-week moving average, which has contained all but one weekly close in Ford shares since early September.

Analysts currently estimate profits of 37 cents per share for the automaker, a slight decline from the 39 cents reported one year ago. On its previous trips to the earnings confessional, Ford has had a tough time impressing the Street. Despite topping expectations in seven of the last eight quarters, F shares have also moved lower in six of the last eight post-earnings trading sessions. One week after earnings hit the tape, results aren't much better, as the stock has been positive on just two occasions, and the average loss is 3%.

If this trend is broken, however, and Ford manages to rally on the heels of its quarterly results tomorrow morning, traders who have purchased puts only stand to lose 100% of the premium paid for their contracts. Currently the site of heaviest put open interest in the front three months is the out-of-the-money May 13 strike, home to nearly 20,000 contracts.


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