Options Volume Erupts on Ford Motor Company, General Motors Company After July Sales

Put volume is soaring on Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) after disappointing July sales

Aug 2, 2016 at 1:02 PM
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Auto stocks Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) are getting crushed today, after the companies' disappointing July sales. While the stocks are getting hammered, options volume is running far above normal intraday levels for both F and GM. Let's take a closer look at how options traders are responding to the automakers' downbeat sales report. 

Shares of F have lost 3.7% to trade at $12.02 -- on pace for its lowest close since February -- as the stock continues to struggle in the aftermath of the company's earnings report last week. The stock is down nearly 15% year-to-date, and has struggled to break into the black in 2016, with the $14 region rejecting recent rebound attempts.

Taking a quick step back, F put volume is running at six times the intraday norm, currently arriving in the 99th annual percentile. The majority of this volume -- roughly 54,000 contracts out of 86,000 puts traded -- has occurred at the August 12 put, and Trade-Alert suggests significant sell-to-close activity here. In other words, option bears are cashing out amid F's sell-off, as delta on the put has doubled to negative 0.48 from negative 0.24 at yesterday's close.

For reference, this focus on puts goes against what's normally seen from F options traders. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.68 ranks in the 12th annual percentile, revealing an unusually high call-skew among short-term speculators. Plus, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 1.72 F calls have been bought to open for every put during the past two weeks. 

As for GM, the stock has fallen 4% to $30.05, putting the shares on pace to close below their 20-day moving average for the first time since July 7. Throughout July, GM was one of the hottest stocks on Wall Street. Nonetheless, the shares are staring up at their year-to-date breakeven mark of $34.01, even though the round $30 level appears to be acting as support. 

Meanwhile, GM puts account for seven of the 10 most popular contracts today, with volume doubling the expected intraday amount. In the front-month August series, the 30, 30.50 and 31 puts are popular, while the longer-term December 30 put has seen the most action of all. It also looks as if one speculator is rolling her bearish position down from the August 28 put to the deeper out-of-the-money August 27.50 put.

Before today, call buying was enormously popular in GM's options pits. By the numbers, the stock's 10-day call/put volume ratio across the ISE, CBOE, and PHLX comes in at a staggering 3.71, putting it just 2 percentage points from a 12-month bearish peak. 

It's worth noting that short-term options appear attractively priced for both Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). For instance, F's Schaeffer's Volatility Index (SVI) of 24% ranks below 77% of the past year's readings, while GM boasts an SVI of 21%, putting it below 94% of the past year's readings. This tells us that the options market is pricing in unusually low volatility expectations for both F and GM.

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