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Despite continued rumors that Ford Motor Company (NYSE:F) may lose leader Alan Mulally --- possibly to Microsoft Corporation (NASDAQ:MSFT) -- the stock has gained nearly 2.5% to $17.41, and options players are taking note. Close to 41,000 call options have already changed hands, representing a modest 6% mark-up to typical intraday call volume (and roughly doubling put volume).
Most active in the automaker's option pits is the March 18 call, where more than 5,200 contracts have traded hands, the lion's share off the ask price. A number of large and mid-sized blocks crossed the tape in rapid succession, and were flagged as a multi-exchange sweep by Trade-Alert. In other words, these were likely traded by one speculator who is targeting long-term upside in the shares. Data from the International Securities Exchange (ISE) confirms that a healthy chunk of this volume was in fact purchased to open.
Based on the volume-weighted average price (VWAP) of $1.01, the breakeven price at expiration in slightly more than six months is $19.01 (strike price plus VWAP). This is a rather optimistic bet, given that Ford Motor (NYSE:F) has not traded north of the $19 mark since November 2001.
Currently, the shares are consolidating just below their two-year high of $17.67, touched in late July. Against this backdrop, delta for the March 18 call stands at 0.46, or 46%. In other words, the options market is currently pricing in a nearly 1-in-2 chance the position will be in the money when expiration rolls around.
If Ford Motor Company (NYSE:F) is unable to take out the $18 level by March options expiration, however, the call buyers have only lost the premium paid.
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