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Pre-Earnings Traders Lose Confidence in Ford Motor Company (F)

Weekly put volume picks up steam on F

by 7/23/2013 11:11 AM
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As Ford Motor Company (NYSE:F) gears up to step into the earnings confessional tomorrow morning, pessimistic traders have been converging on the stock today. Roughly 14,000 puts have crossed the tape already this morning, which is almost double the equity's expected intraday volume. Digging deeper into the data, it looks as though a handful of speculators are counting on the automaker to stumble by week's end.

More specifically, close to 6,800 puts have changed hands at the weekly 7/26 17 strike at a volume-weighted average price (VWAP) $0.29. The vast majority of these contracts traded off the ask price, suggesting they were purchased. Since today's volume exceeds present open interest levels -- and implied volatility was last seen 7.5 percentage points higher -- it's likely that new positions are being initiated here.

In this scenario, the put buyers are counting on F to fall below the breakeven rail of $16.71 (strike price less the VWAP) by this Friday's close, which is when these options expire. This would entail a drop of just 1.1% from the stock's current perch at $16.90. Meanwhile, the delta for these puts rests at negative 0.54, implying they have a better than 1-in-2 chance of arriving in the money over the next several days. However, even if the equity fails to sink low enough to garner a profit, the most today's skeptics risk parting with is the premium paid.

This bearish persuasion marks a change of pace for the auto giant. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 5.62 for F, confirming calls bought to open have outstripped puts by a margin of more than 5-to-1 during the last couple of weeks. This ratio registers in the 96th percentile of its annual range, meaning traders have picked up calls over puts at a faster pace just 4% of the time within the past year.

As a result, F sports a Schaeffer's put/call open interest ratio (SOIR) of 0.42, indicating calls more than double puts among options with a shelf-life of three months or less. In fact, this ratio sits at a 52-week nadir, signaling short-term speculators are more call-heavy toward the security now than at any other time during the last 12 months.

From a technical perspective, F has advanced around 31% in 2013, and more than 85% on a year-over-year basis. On the charts, the equity continues to trade above its 10-week moving average, which has acted primarily as support since August 2012.

As alluded to earlier, Ford Motor Company (NYSE:F) will report second-quarter earnings ahead of tomorrow's open, and has bested analysts' bottom-line projections in seven of the past eight quarters. However, it's worth noting that the security was trending an average of 1.4% lower the day after posting results, and was off about 2.6% a week later. Analysts are predicting a per-share profit of 37 cents.


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