Ford Motor Company (F) Bounce Draws Options Bulls

Ford Motor Company (NYSE:F) has been gaining ground in recent weeks

Jul 20, 2016 at 12:09 PM
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Ford Motor Company (NYSE:F) call buyers have been coming out of the woodwork in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the past 10 sessions, options traders have bought to open 35,168 calls on F stock, versus 15,898 puts. What's more, the resultant call/put volume ratio of 2.21 ranks in the 63rd annual percentile.

Echoing this call-skewed backdrop is F's Schaeffer's put/call open interest ratio (SOIR) of 0.55. Not only does this show that calls nearly double puts among options set to expire in three months or less, but it rests lower than all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy now toward F than they've been at any other point during the past year.

In today's trading, calls are crossing the tape at 1.7 times the average intraday rate -- and outpacing puts by a 2-to-1 margin. This is the third session in four that F has seen a sharp rise in call volume. Yesterday, in fact, calls traded at two times what was expected, and outranked puts by an almost 6-to-1 ratio. Last Friday, meanwhile, roughly 34,000 F calls were traded, compared to fewer than 8,500 puts.

Today, options traders appear to be purchasing new positions at F's weekly 8/5 14-strike and August 15 calls. If this is the case, they expect F to settle north of the strike prices at the respective expiration dates of Friday, Aug. 5, and Friday, Aug. 19. Regardless of whether these calls expire out of the money, though, the most the speculators stand to lose is the initial premium paid.

Now appears to be a prime time to purchase premium on F's short-term options, too. Even with Ford preparing to take its turn on the earnings stage ahead of next Thursday's open, volatility expectations are currently low -- a possible boon for options buyers. Specifically, F's Schaeffer's Volatility Index (SVI) of 24% ranks in the 22nd annual percentile, while its 30-day at-the-money implied volatility of 24.3% rests lower than 62% of similar readings taken in the last 12 months.

Technically, F remains a long-term laggard, down 5.4% year-over-year. However, the shares of Ford Motor Company (NYSE:F) have bounced more than 14% off their late-June lows -- clearing their formerly resistant 200-day moving average in the process. Today, the stock is 0.6% higher, too, trading at $13.73 as broad-market tailwinds overshadow a price-target cut to $17 from $18 at J.P. Morgan Securities.

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