Why Options Traders Should Consider Calls on Ford, Tata Motors

Auto stocks Ford Motor Company (NYSE:F) and Tata Motors Limited (ADR) (NYSE:TTM) recently sent up short-term "buy" signals

Mar 2, 2017 at 2:38 PM
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The shares of automakers Ford Motor Company (NYSE:F) and Tata Motors Limited (ADR) (NYSE:TTM) recently sent up short-term "buy" signals, if past is prologue. Both stocks are just off key moving averages, recent tests of which have marked opportunities for near-term bulls. So, is now the time to buy short-term call options on F and TTM?

Ford Motor Stock In a Bullish Pattern

At $12.71, F has muscled 14.8% higher since its post-Election Day low, and is in the midst of a bullish symmetrical triangle pattern. On the top end is the stock's descending 320-day moving average, while Ford's 80-day moving average has emerged as support. What's more, after the last six tests of its 80-day, F has gone on to average a one-week gain of 1.03%, and was higher 83% of the time, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.


Ford Motor F stock chart


Analysts, meanwhile, remain skeptical of F, despite its post-Trump rally. Nine of 15 brokerage firms maintain tepid "hold" or "strong sell" opinions, leaving the door open for a round of upgrades to potentially push F out of its pattern.

In the options pits, though, traders are already betting on more upside for F. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 50-day call/put volume ratio of 1.85 -- in the 97th percentile of its annual range. In other words, options buyers have picked up F calls over puts at a near-annual-high clip during the past two weeks.

But now is an opportune time to scoop up short-term options on F. The stock's Schaeffer's Volatility Index (SVI) of 20% is higher than just 6% of all other readings from the past year, indicating near-term options are pricing in relatively muted volatility expectations. However, it's worth noting that one month after previous tests of the aforementioned 80-day trendline, Ford has been higher 67% of the time, but averages a loss of 1.23%. So perhaps keep that in mind when trying to time an options trade.

Tata Motors Options Are a Steal

TTM shares gapped lower on Feb. 14, after the company reported a steeper-than-expected drop in quarterly profit, citing a sharp slide in Jaguar Land Rover earnings. The bear gap resulted in a test of TTM's 320-day moving average, which contained a pullback in early December, and is in the $32-$34 vicinity -- site of a mid-2016 bull gap and TTM's year-to-date breakeven level. Further, after its last three tests of the 320-day trendline, TTM averaged a one-week gain of 3.54%, and was higher 100% of the time, according to White. Looking one month out, TTM was higher 50% of the time, averaging a healthy gain of 4.44%. At last check, the stock was parked at $34.55.

Tata Motors TTM stock chart


Those looking to scoop up short-term TTM options can have them for a steal. The equity's SVI of 27% is in just the 17th percentile of its annual range. What's more, TTM sports a Schaeffer's Volatility Scorecard (SVS) of 94 -- indicating the stock has handily exceeded options players' volatility expectations over the past year. 

However, as Schaeffer's Senior Trading Analyst Bryan Sapp recently noted, "there isn't too much to get excited about" from an Expectational Analysis standpoint. That is, all three analysts covering TTM already consider it a "strong buy," and short interest accounts for not even 1% of the equity's total available float, suggesting little sideline money to fuel a notable bounce.

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