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Fire Sale on Ford Motor Company (F) Options

Ford Motor Company speculators are picking up soon-to-expire puts

by 5/1/2014 2:42 PM
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Option Brief: Ford Motor Company (NYSE:F) is 1.1% lower at $15.96, after the firm reported lackluster April auto sales and named a successor to CEO Alan Mulally. Against this backdrop, options traders are wagering on more downside for F tomorrow -- and are picking up short-term options at bargain-basement prices. In fact, the stock's 30-day at-the-money implied volatility (IV) hit a 52-week low earlier in the session, but was last seen 2% higher at 17.6%. Echoing that, the equity's Schaeffer's Volatility Index (SVI) of 18% sits just 8 percentage points from a 12-month nadir, suggesting F's front-month options are attractively priced right now, from a volatility standpoint.

The automaker's most active option on the day has been the weekly 5/2 16-strike put, where nearly 9,500 contracts have traded. Almost two-thirds of the puts changed hands at the ask price and volume has surpassed open interest -- collectively pointing to newly bought bearish bets.

By purchasing the puts at a volume-weighted average price (VWAP) of $0.09, the buyers will make money if F is docked south of breakeven at $15.91 (strike minus VWAP) at tomorrow's close, when the options expire. In light of the security's retreat today, delta on the puts has jumped to negative 0.61 from negative 0.30 at yesterday's close, implying a greater than 1-in-2 shot of an in-the-money finish at expiration. Risk, meanwhile, is limited to the initial premium paid for the puts, should F settle north of $16 tomorrow.

On the charts, Ford Motor Company (NYSE:F) has underperformed the broader S&P 500 Index (SPX) during the past month, with recent rebound attempts stalling in the $16.50 neighborhood -- home to F's 200-day moving average. Off the charts, the company will hold its annual shareholder meeting next Thursday, May 8.

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