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Option Brief: Ford Motor Company (NYSE:F) has seen an influx of call activity in today's session, with around 72,000 contracts crossing the tape thus far. This is double the anticipated intraday norm, and more than 10 times the number of puts exchanged. However, the action in F's options pits seems to be a mixture of bullish and neutral-to-bearish bets.
One of the most popular calls has been the weekly 12/6 17 strike, where nearly 13,400 contracts have switched hands -- a large portion of them at the ask price, signaling buyer-driven activity. Today's volume has exceeded present open interest levels, and implied volatility has climbed 5.6 percentage points since the opening bell, indicating that fresh long positions may have been initiated here. In other words, the traders are expecting F -- currently docked at $16.77 -- to ascend past $17 by tomorrow's close, when these weekly options expire.
Elsewhere, several blocks totaling 7,500 calls changed hands shortly before noon at the weekly 12/27 17 strike, for a volume-weighted average price (VWAP) of $0.26, while an equal number of calls traded simultaneously at the weekly 12/27 16.50 strike at a VWAP of $0.52. According to the ISE, the higher-strike calls were bought to open, while the lower-strike calls were sold to open -- suggesting that one firm employed a bear call spread for a net credit of $0.26 per pair of contracts.
In this strategy, the trader is betting that F will finish at or below $16.50 by the closing bell on Dec. 27. Breakeven in this case is $16.76, or the sold strike plus the net credit. His maximum reward is limited to the net credit received, while his potential losses are limited to $0.24 -- or the difference between the strike prices, less the net credit.