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Ford Motor Bulls Predict New Highs by Summer

F's June 16 strike catches the attention of call buyers

by 1/9/2013 2:01 PM
Stocks quoted in this article:

Bullish options activity is running slightly hotter than usual on Ford Motor Company (NYSE:F - 13.48) today, with roughly 80,000 calls crossing the tape so far -- more than four times the number of puts exchanged. Garnering notable attention has been the June 16 call, where nearly 5,400 contracts have traded -- almost all of them at the ask price, pointing to buyer-driven volume.

Digging deeper into the data, its looks as though these out-of-the-money contracts crossed at a volume-weighted average price (VWAP) of $0.24. Since this strike is currently home to open interest of just 2,999 contracts, it's likely that some of today's volume is comprised of new positions. In order for traders to realize a profit on their bullish bets, the stock must climb north of $16.24 (strike price plus the VWAP) by June expiration. This represents a 20.5% increase over F's current perch, which would push the shares into territory not charted since February 2011.

This penchant for calls over puts is nothing new for F. In fact, the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 3.87, indicating calls bought to open have nearly quadrupled puts during the past few months. This ratio ranks higher than 67% of comparable readings taken within the past year, reflecting a healthier-than-usual appetite for calls over puts.

However, it should also be noted that short interest on the automaker rose by nearly 7% during the past two reporting periods, and now accounts for more than 5% of F's available float. It would take more than a week to unwind these shorted shares, at the stock's average pace of trading. This raises the possibility that some of the aforementioned buy-to-open call activity could be the work of short sellers looking to hedge their bearish bets.

F has put forth a commendable performance on the technical front, gaining more than 14% on a year-over-year basis, and outpacing the broader S&P 500 Index (SPX) by close to 32 percentage points during the past three months. What's more, the stock is trading well above its 20-month moving average, a trendline that has been conquered just once on a monthly closing basis since June 2011. Still, should the shares fall short of the previously noted breakeven rail, the most today's bulls stand to lose is the initial premium paid for their call purchases.


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