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Ford Motor Company (F) Traders Gamble Ahead of May Sales Release

Ford Motor Company calls were unusually popular yesterday

by 5/29/2014 10:42 AM
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Ford Motor Company (NYSE:F) puts have been popular among options traders lately. During the last 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a put/call volume ratio of 0.45 -- just 4 percentage points shy of a 12-month high.

Yesterday, however, F calls traded at more than six times the pace of puts. In fact, nine of the 10 most active strikes transpired on the call side of the fence. The weekly 6/6 16.50-strike call was king of the hill, with 15,435 contracts traded at a volume-weighted average price (VWAP) of $0.09. Nearly two-thirds crossed the tape at the ask price, and open interest soared overnight, making it safe to assume the positions were freshly minted -- a theory confirmed by Trade-Alert.

By buying the calls -- which are now slightly in the money, with Ford shares 1.3% higher at $16.53 -- the traders expect continued upside through the end of next week. Specifically, Wednesday's option players will profit if F is sitting north of $16.59 (strike plus VWAP) at the closing bell next Friday -- when the contracts expire -- with theoretically unlimited gains north of that point. However, if the stock slips below the strike at expiration, the buyers will risk forfeiting their initial cash outlay. Fortunately, F options are relatively affordable right now -- the stock's Schaeffer's Volatility Index (SVI) of 15% rests lower than 93% of comparable readings from the past year.

Elsewhere, Ford Motor Company (NYSE:F) announced yesterday it will begin offering its patented inflatable seat belts to other companies. More importantly, next Tuesday, June 3 -- ahead of weekly options expiration -- the firm is scheduled to release May sales data. Last time around (on May 1), the automaker reported a 1% dip in retail sales for the month of April, pressuring the shares 4.3% lower in the subsequent week. If this happens again, it could be bad news for the aforementioned option bulls.

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