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Ford Motor Speculators See Additional Gains

Option buyers are displaying a healthier-than-usual appetite for F calls

by 12/21/2012 2:24 PM
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Options traders are waxing optimistic on Ford Motor Company (NYSE:F - 11.55), as evidenced by the growing affinity for long calls. So far today, the automaker has seen roughly 71,000 calls change hands -- a 41% mark-up to its average intraday call volume, and more than four times the number of F puts traded thus far.

Most active by a mile has been the June 11 call, which has seen more than 20,700 contracts cross the tape on open interest of fewer than 5,100 contracts, pointing to a batch of new positions. Around midday, a block of 10,600 contracts traded at the ask price of $1.24, suggesting they were bought.

By purchasing the calls to open, the buyer is expecting F to extend its journey north of $11 over the next few months. More specifically, the speculator will profit if F topples the $12.24 level (strike plus premium paid) -- in territory not charted since April -- by June options expiration. However, even if F remains south of the strike over the long term, the buyers' maximum risk is capped at the initial net debit.

From a broader sentiment standpoint, today's bullish betting is just more of the same for F. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly six calls for every put during the past two weeks. Plus, this ratio stands higher than 87% of all other readings of the past year, hinting at a healthier-than-usual appetite for long calls of late.

In the January series of options -- which assumes front-month status after the closing bell -- the 14-strike call has grown increasingly popular, with roughly 7,000 contracts initiated during the past couple of weeks. But, considering short interest jumped 17.9% during the past month -- and now accounts for nearly a week's worth of pent-up buying demand, at F's average pace of trading -- the out-of-the-money calls could be attributable to hedging activity among the shorts.

At last check, F has fallen in sympathy with the broader equities market, shedding 1.9% to wink at the $11.55 level. On the fundamental front, the car concern will unveil its December sales figures before the open on Thursday, Jan. 3.


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