Stocks quoted in this article:
Ford Motor Company (NYSE:F) muscled higher on Tuesday, as traders applauded the company's September sales report. However, one option trader is expecting the stock -- which has added more than 74% over the last year -- to remain pinned to the $17 level in the short term.
Like fellow car concern General Motors Company (NYSE:GM), F was targeted for a short straddle strategy yesterday. In early afternoon trading, symmetrical blocks of puts and calls crossed at the November 17 strike. All of the contracts traded on the bid side -- the puts for $0.59 apiece, the calls for $0.79 each -- suggesting they were sold. Plus, open interest skyrocketed on both sides of the strike overnight, confirming the straddle was sold to open for a net credit of $1.38 per pair of contracts.
To retain the entire net credit, which represents the maximum reward on the play, the strategist needs F to finish right at $17 when November-dated options expire, rendering both sides worthless. However, the trader can pocket at least some of the initial premium received as long as F stays between $15.62 (strike price minus net credit) and $18.38 (strike price plus net credit). Should the stock violate either breakeven rail, the investor's losses will begin to accumulate.
On the charts, F has added more than 31.5% in 2013, but has spent the past three months struggling to surmount the $17-$17.50 range. In early trading, the shares have surrendered 0.9% to flirt with $17.05.
Off the charts, Ford Motor Company (NYSE:F) yesterday bucked the overall trend, reporting stronger-than-expected monthly sales. In fact, the Detroit darling had its best September in seven years, with year-over-year U.S. sales up 5.8%.
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