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Ford Motor Company (F) Earnings Disappoint Option Bulls

Yesterday's Ford Motor Company call buyers can't be happy with this morning's news

by 4/25/2014 10:49 AM
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Ahead of this morning's first-quarter earnings report, Ford Motor Company (NYSE:F) bulls had been active in the options pits. In fact, during the past 10 days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders bought to open more than eight calls for every put. The resultant call/put volume ratio of 8.16 is higher than any other reading from the previous year, suggesting speculators have scooped up long calls (relative to puts) at an extreme pace.

This was certainly the case in F's options pits yesterday, when 148,000 calls changed hands -- double the expected intraday rate, and roughly 4.5 times the number of puts traded. One of the most active strikes was the September 17 call, which saw nearly 16,100 contracts change hands. This volume was mostly the result of a 15,000-contract lot that crossed the tape at the ask price, suggesting it was bought. Open interest at the strike rose by 15,445 contracts overnight, as well -- the most of any Ford option -- making it safe to assume the calls were freshly initiated.

Most likely, the buyer was hoping the automaker would post better-than-expected numbers this morning, and help the stock rally north of the 17 strike by September options expiration. An earnings miss, however, has F shares off nearly 3% at $15.85. As such, delta on the out-of-the-money call has sunk to 0.30 (from 0.37 at yesterday's close), representing a less than 1-in-3 chance the option will finish in the money. No matter what happens, however, the most the call buyers have on the line is the initial premium paid.

After this morning's losses, Ford Motor Company (NYSE:F) is now up less than 3% year-to-date. In fact, the stock hasn't traded north of the $17 level since early December. If the shares continue to struggle on the charts, a mass exodus among the option bulls could pressure F even further south.


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