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Ford Motor Option Traders Eye Long-Term Struggles

F's April 12 put is seeing buy-to-open activity today

by 12/27/2012 11:25 AM
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Ford Motor Company's (NYSE:F - 12.57) roughly 2% drop in today's session has put players circling, with long-term skeptics setting their sights on F's April series of options. The stock's April 12 put has emerged as one of the more popular strikes, and around 4,100 contracts have changed hands here thus far. Almost all of these have crossed at the ask price, implied volatility has ticked higher, and volume is easily outstripping open interest, indicating the purchase of new positions.

By buying the near-the-money puts to open for a volume-weighted average price (VWAP) of $0.59, traders will begin to profit with each step south of $11.41 (the strike minus the VWAP) F takes through April expiration. This breakeven level represents a 9.2% drop from the stock's current perch. Should the equity fail to breach $11.41 by Apr. 19, the most the traders stand to lose is the initial premium paid.

Widening the scope, the withstanding trend in the options pits has been of the bullish variety. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 441 calls for every 100 puts during the past 50 sessions. What's more, this call/put volume ratio of 4.41 ranks in the 92nd percentile of its annual range, suggesting long calls have been scooped up over puts at a near annual-high clip in recent months.

With the stock sporting a roughly 19% year-over-year advance, it's easy to see why option players have had a taste for bullish bets of late. Additionally, the equity has outperformed the broader S&P 500 Index (SPX) by nearly 32 percentage points over the last 60 sessions.

In light of this technical tenacity, today's attention toward F's April 12 puts may simply be shareholders protecting their portfolios against any additional downside over the next four months -- which encompasses the company's monthly sales report, scheduled for release a week from today. It should be noted that the stock's Relative Strength Index (RSI) of 80 is sitting solidly in overbought territory, implying a near-term pullback may have been in the cards.

At last check, the equity was hovering near $12.57, after revealing this morning that it plans to invest $773 million in improving its facilities in Michigan.


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