Ford (F) trade calls for long-term upside

By Karla Yeh,

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Shares of 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Options
Referenced Stocks: F

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Karla Yeh

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