Time to Buy Puts on Ford Motor Stock?

High expectations surround underperforming Ford Motor stock

Apr 10, 2017 at 11:26 AM
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It's been a rough ride for shares of Ford Motor Company (NYSE:F), which have shed more than 14% since forming a double top near $13.20 in December and January to trade at $11.34. What's more, the automaker has since lost its status as the second-biggest U.S. automaker, after Tesla Inc (NASDAQ:TSLA) overtook Ford's market cap last week -- and has surpassed General Motors Company (NYSE:GM) for the top spot in today's trading. Despite these technical struggles, there are still high expectations levied toward F stock -- which could make it ripe for a bearish contrarian play, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. 

F stock daily price chart april 10

In the options pits, for instance, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 63,282 calls on F in the last two weeks, compared to 29,284 puts. The resultant call/put volume ratio of 2.16 ranks in the 76th annual percentile, meaning calls have been bought to open over puts at a faster-than-usual clip. Drilling down, the overhead 11.50, 12, and 13 strikes are home to lofty levels of call open interest across all options series through standard May expiration. This could create a "call wall" for Ford stock on any near-term rally attempts.

f stock open interest configuration


Elsewhere, short sellers have been signaling renewed interest in F stock, after months of covering. Specifically, short interest plunged more than 56% from mid-October to early February, but has since jumped almost 22%. However, these bearish bets account for just 2.3% of the stock's available float, suggesting there's plenty of room for more of these pessimistic players to come aboard, which could create more headwinds for Ford shares.

Now, it's definitely worth noting that the underfoot 11 level has served as a floor for F stock since 2015. Nevertheless, now appears to be an opportune time for options traders to place a short-term bet on Ford Motor Company (NYSE:F). The stock's Schaeffer's Volatility Index (SVI) of 22% ranks in the 31st annual percentile, meaning tepid volatility expectations are being priced into F's short-term options -- a potential boon to premium buyers.

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