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Ford Motor Company (F) Option Players See Speed Bumps Ahead

F speculators are showing a relatively rare fondness for put options

by 3/15/2013 12:59 PM
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Like the majority of equities today, Ford Motor Company (NYSE:F - 13.39) is trading in the red, whetting investors' collective appetite for bearish option bets. So far today, the automaker has seen around 19,000 puts cross the tape -- a 33% mark-up to its average midday put volume. However, despite underperforming the broader S&P 500 Index (SPX) by more than 11 percentage points during the past couple of months, today's healthier-than-usual appetite for puts marks a shift in sentiment.

Jumping right in, more than half of the action has transpired at the weekly 3/28 13-strike put, which has seen around 10,300 contracts change hands on open interest of fewer than 2,400 contracts, pointing to an influx of new positions. Plus, nearly all of the puts have traded on the ask side, suggesting they were bought.

In order to profit on their positions, the put buyers need Ford Motor Company to breach the $12.90 level (strike price minus volume-weighted average price of $0.10) within the next week, when the options expire. Currently, delta on the puts stands at negative 0.24, or 24%, suggesting the options market is giving the contracts a roughly 1-in-4 shot of moving into the money. Risk, however, is limited to the initial cash outlay.

As alluded to earlier, today's preference for puts marks a change of pace for F's options crowd. During the past couple of weeks, speculators have bought to open more than four F calls for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Even more telling, perhaps, the stock's 10-day call/put volume ratio of 4.48 stands higher than 76% of all other readings of the past year, indicating that option buyers have initiated bullish bets over bearish at a faster-than-usual pace.

Technically speaking, the shares of F are treading water in the $13-$13.50 neighborhood, which has rejected the bulk of the stock's advances since August 2011. What's more, the 14 strike is home to significant call open interest in both the March series (expiring today) and April series of options. In the short term, this abundance of bullish bets overhead could exacerbate resistance in the region.

In today's session, F was last seen 0.2% lower in the $13.39 vicinity. Ford Motor Company today said CEO Alan Mulally's pay fell 29% in 2012, after the Detroit darling failed to hit some of its key goals. Including stock awards, options, and other perks, Mulally raked in $21 million last year, compared to $29.5 million in 2011.


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