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Option Brief: As Ford Motor Company (NYSE:F) shares continue to tread water around the $17 price level, some optimistic traders are loading up on sizable bets that the stock will shoot higher over the next few months. In fact, they are targeting new multi-year highs. In order to play this hunch, these large-scale traders employed options to mimic a return in the stock itself.
Diving in, Ford's February 2014 16-strike put and 20-strike call are active for a second consecutive session. Today, blocks of 4,800 crossed the tape at both strikes shortly after the open. The calls traded for the ask price of $0.12 per contract and the puts traded for the bid price of $0.50 each, suggesting the former were purchased, while the latter were sold, for a net credit of $0.38 per pair of contracts. On Monday, in similar fashion, blocks of 9,016 contracts changed hands -- the February 2014 16-strike puts for a bid price of $0.48, and the February 2014 20-strike calls for the ask price of $0.13.
This play essentially bets on Ford Motor to move higher between now and when February options expire, in roughly three months. If Ford is trading anywhere between the two strike prices ($16 and $20) at expiration, profits will be limited to the modest net credit collected from selling the spread. Should Ford rally beyond the $20 level, however, gains are theoretically unlimited, as they are with a stock purchase. Also like a stock purchase, however, losses are capped only at zero, should Ford take a turn for the worse.
On the charts, Ford Motor Company (NYSE:F) has been shuffling sideways since early July and is presently perched at $16.87. The $18 level has been tough for the stock to surmount, as it marked a ceiling for the shares in early 2011 as well. In fact, Ford has managed just two weekly finishes north of the $18 mark in the last 10 years. Today's bullish speculators are hoping for a bold break of this trend -- indeed, a move above $20. The stock's current momentum, however -- as well as its relative strength index (RSI) of 48 (suggesting neither an oversold nor an overbought condition) -- don't seem to have such a move in the cards.