Ford Motor Company, Fiat Chrysler Automobiles NV Call Options Popular Ahead of Earnings

Ford Motor Company (F) and Fiat Chrysler Automobiles NV (FCAU) are due to report earnings this week, and call options are more popular than usual

Jan 24, 2017 at 1:41 PM
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Along with General Motors Company (NYSE:GM), U.S. auto manufacturers Ford Motor Company (NYSE:F), and Fiat Chrysler Automobiles NV (NYSE:FCAU) are making headlines after the CEOs of all three companies had a mid-morning meeting with President Donald Trump, who said he wanted to see more auto plants built in the U.S. For both F and FCAU, short-term option traders are more call-heavy than usual ahead of earnings this week, despite the stocks' recent earnings history.

So far today, F is up 1.6% at $12.51. Despite running into resistance at its 320-day moving average on several occasions over the past year, F is up 4% year-over-year, though the shares have been making a series of lower highs since 2014.

In F's option pits today, calls are trading at nearly three times the pace of puts, at 1.6 times their average intraday volume. The weekly 1/27 13-strike call is F's most active option so far, with potential buy-to-open activity detected. In addition, it looks like one trader bought to open a block of 1,758 weekly 2/24 12.50-strike calls, betting on F to extend its lead atop $12.50 before expiration on Feb. 24.

F's Schaeffer's put/call open interest ratio (SOIR) sits at an annual low, indicating near-term option players are more call-skewed than at any other time in the last 12 months. Elsewhere, F's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 1.62 calls bought to open for every put over the last 10 weeks -- a reading that sits in the top 70% of its annual range. 

Now looks like the time to buy premium on F options. Ahead of earnings on Thursday, F's Schaeffer's Volatility Index (SVI) of 25% sits in the bottom 25% of its annual range, indicating near-term options are attractively priced, historically speaking. This time around, it looks like option players are pricing in a 4% single-session move for F, larger than its average move of 3% in the session after its last eight earnings reports. Bullish traders should take note, however, with Ford Motor Company (NYSE:F) shares finishing lower in the session after earnings in four of the five last quarters.

Changing gears, FCAU is up 6.2% at $10.92, and is up 77% since its near-term low in September, riding its 30-day moving average to record high of $11.32 earlier this month -- before Environmental Protection Agency (EPA) accusations took some of the wind out of the stock's sails. However, the $10.50-$11 region has worked as a speed bump for FCAU in the past.

In FCAU's option pits, calls are outpacing puts 6-to-1 today, with FCAU's most active option being the February 11 call, with buy-to-open action detected. Like F, FCAU's SOIR of 0.25 sits at an annual low, indicating an unusually strong call-bias among near-term traders. In addition, FCAU's overall put open interest is near an annual low.

However, despite this elevated SOIR and today's preference for calls, option buyers have been more bearish than usual, with FCAU's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.00 sitting higher than 74% of all other readings from the past year. Of course, considering FCAU's recent ascent, some of those puts may have been purchased by shareholders seeking an options hedge ahead of earnings.

With an SVI of 44% sitting lower than 73% of all other readings from the last year, FCAU's near-term options remain attractively priced ahead of earnings on Thursday. Plus, FCAU's Schaeffer's Volatility Scorecard (SVS) of 70 indicates the stock has tended to exceed option traders' volatility expectations over the last 12 months. Ahead of earnings, option players are pricing in a single-day move of 4.9% this time around, slightly higher than FCAU's average move of 4.4% in the session after its last eight reports. Like Ford, FCAU has finished the day after earnings in the red in four of the last five quarters.

Should Fiat Chrysler Automobiles NV (NYSE:FCAU) report stronger-than-expected earnings, though, a short squeeze could propel the stock to higher highs. Although FCAU short interest is down more than 62% over the last reporting period, it would still take nearly a week to cover these bearish bets, at the stock's average daily volume.

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