Ford Motor Co. (NYSE: F )
are in the red on Wednesday without any notable news on the
company. At least one investor appears to have chosen to express
bullishness on the company by loading up on longer-dated calls.
At 10:55 a.m. EDT, a block of roughly 5,000 March 20 calls
changed hands for eight cents per contract, which was right at the
ask when the volume hit the tape. Current open interest in this
line is 1,000 contracts. It looks like the investor paid a total of
roughly $40,000 to open a long call position in F.
This trade will make money if F shares are trading higher than
$20.08 at March options expiration, and could theoretically
continue to turn profits if the stock continues to the upside. The
investor is calling for F shares to rally at least 65% and reach a
new high during the next seven months. F shares have not traded
higher than $15 during the last five years.
If F shares are still trading below the strike price of $20 when
the March 20 calls expire, the investor will lose a maximum of the
premium paid per contract. Return on risk for this and other long
call trades is theoretically unlimited to the upside. If the stock
is trading higher than the strike price but lower than the
breakeven price of $20.08 at expiration, the investor takes back
some of the debit paid.
It is possible that this F investor tied a stock position to
this long call trade, which would turn this directional play into a
volatility bet. This article, however, focuses only on the call
volume on the tape.
F shares dropped roughly five cents to $12.11 during midday
trading. The stock is relatively in-line with the broad market
losses so far on the day, and are trading approximately 8% lower
than a recent high of $13.20. On July 23, F announced earnings of
68 cents per share and beat estimates by a whopping 28 cents. F did
not announce any news on Wednesday, and the market expects its next
earnings announcement near the beginning of November.