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Option Brief: Ford Motor Company (NYSE:F) edged lower yesterday, settling at $15.15, after the automaker fell to its lowest Consumer Reports ranking in more than seven years. In fact, Ford came in as the second-worst brand, beating only Jeep, while Tesla Motors Inc (NASAQ:TSLA) took the top spot. Nevertheless, some option traders wagered on a short-term recovery for F, picking up front-month call contracts.
During the course of the session, F saw about 39,000 calls cross the tape -- 3.5 times the number of puts exchanged. Most popular was the May 16 call, where more than 5,300 contracts traded, primarily in mid- and large-sized blocks at the ask price, suggesting they were bought. Plus, open interest at the strike soared overnight, suggesting the bulk of the volume consisted of new positions.
By purchasing the calls at a volume-weighted average price (VWAP) of $0.30, the buyers expect Ford Motor Company (NYSE:F) to rebound north of $16.30 (strike price plus VWAP) by the close on Friday, May 16, when the options expire. In order for this to come to fruition, F would need to rally 7.6% from its current perch, and take out both its 10-week and 20-week moving averages, which have acted as resistance since late October.
Risk, meanwhile, is capped at the initial premium paid for the calls -- which isn't much, relatively speaking. The stock's Schaeffer's Volatility Index (SVI) of 20% rests just 8 percentage points from an annual low, implying that F's short-term options are attractively priced right now, from a historical standpoint.