Ford Stock Looks To Reverse Ugly Post-Earnings Trend

Ford short sellers may be hedging with call options before earnings

by Patrick Martin

Published on Apr 24, 2018 at 2:25 PM
Updated on Jun 24, 2020 at 10:16 AM

Ford Motor Company (NYSE:F) will be the first car company to step up to the plate this earnings season, with the Detroit-based automaker scheduled to report first-quarter earnings after the close Wednesday, April 25. Ahead of the event, options activity has been bullish, despite the stock's troubling post-earnings history.

Ford stock has produced a negative earnings reaction in six of the last eight quarters. In January, the stock dropped 4% the day after earnings, and gave back 1.1% following its report last April. In the last two years overall, the equity has averaged a 3.1% move the day after earnings, regardless of direction. This time around, the options market is pricing in a larger-than-usual 4.8% one-day move, per implied volatility data.

Looking closer at the charts, Ford stock has already shed almost 11% in 2018, and at last check was down 0.4% to trade at $11 today. After hitting an annual high of $13.33 on Jan. 16, the shares pulled back to near the $10 level, and recent breakout attempts have been thwarted by the 200-day moving average.

Ford Stock Chart

The options pits paint a bullish picture, though. 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 4.60. Not only does this show that bought calls have outnumbered puts by a nearly 5-to-1 ratio, but the reading ranks 3 percentage points from a 52-week high, pointing to a healthier-than-usual appetite for bullish bets of late.

Digging deeper, the weekly 4/27 11.50- and 12-strike calls saw notable increases in open interest during this time frame. According to data from the major options exchanges, most of the activity at these strikes has been of the buy-to-open variety. But considering how far out of the money these calls are, and the fact that short interest rose 16.4% in the previous two reporting periods, some of this activity could be from short sellers using options to hedge against a post-earnings rally.


A Schaeffer's 39th Anniversary Exclusive!

8 Top Stock Picks for 2020

Access your FREE insider report before it's too late!


  
 
 

Partnercenter