Ford Motor Company (F) and the $1.5 Million Bullish Bet

Ford Motor Company call open interest is at a multi-year peak

by Karee Venema

Published on Nov 13, 2014 at 9:40 AM
Updated on Apr 20, 2015 at 5:32 PM

Ford Motor Company (NYSE:F) option traders have been initiating long calls over puts at fever-pitch in recent weeks. In fact, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 20.90 ranks higher than all other comparable readings taken in the past year.

It was a trend witnessed yesterday, where calls traded at two times the average daily rate, and outpaced puts by a more than 6-to-1 ratio. What's more, based on overnight open interest translations, F's call open interest is now resting at a multi-year peak.

Drilling down on Wednesday's action, F's January 2015 15-strike call was most popular by a mile, with 55,442 contracts on the tape by the close. The majority of the activity occurred when a massive block of 39,128 contracts was bought to open for $0.39 apiece, resulting in an initial net debit of roughly $1.5 million (number of contracts * premium paid * 100 shares per contract).

This is the most the speculator stands to lose, should F settle south of the strike price at the close on Friday, Jan. 16 -- when the options expire. Gains, meanwhile, are theoretically unlimited on a move north. At last night's close, delta on the call was docked at 0.41, suggesting a roughly 2-in-5 chance the option will be in the money at expiration.

While F's longer-term trajectory has done little to warrant such optimism -- the stock is down 12.6% year-over-year -- the equity has been making an attempt at technical redemption in recent weeks. Since hitting an annual low of $13.26 in mid-October, the shares have rallied nearly 13% to their current perch at $14.93. Ford Motor Company (NYSE:F) is extending this momentum in today's session, after reporting an 8.1% boost in European sales last month -- its fifth consecutive month of gains across the pond.

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