The shares of Ford Motor Company (
) have followed the broader equities market higher today, despite a
dip in month-over-month and year-over-year sales in August.
Furthermore, the automaker said its market share grew for the 22nd
month in 23, with the company touting demand for its "high-quality,
fuel-efficient" vehicles. "Ford continues to outperform the overall
industry," noted U.S. sales executive Ken Czubay.
Options speculators have also responded to Ford's latest
figures, especially on the call side of the tape. So far today, the
stock has seen roughly 104,000 calls change hands - more than twice
its predicted single-session volume of about 49,000 calls. On the
flip side, F has seen around 28,000 puts cross the tape,
practically on par with its expected daily volume of 25,000
Garnering the most attention has been the near-the-money September
12 call, which has seen about 19,000 contracts traded so far - most
of which have traded at the ask price, suggesting they were bought.
However, with more than 177,100 calls already docked at the
front-month strike, we can't yet tell how much of today's volume
will translate into freshly purchased bullish bets.
Digging deeper into today's options action, it appears one
speculator may be employing options to simulate a short stock
position on F. Earlier today, a block of 1,120 December 11 puts
changed hands at the ask price of $0.84, suggesting they were
bought. At the same time, a symmetrical block of December 12 calls
crossed the tape for the bid price of $0.82, implying they were
Assuming both blocks - each marked "spread" - consisted of new
positions, we could be looking at a less aggressive version of the
synthetic short stock strategy
, which is constructed by buying puts and selling an equal amount
of higher-strike calls with the same expiration.
Since the investor paid $0.84 for each December 11 put and
received $0.82 for each December 12 call, the net debit on the play
stands at only $0.02 per pair of options - a relatively scant entry
fee compared to what it would cost to simply short hundreds of F
shares. Nevertheless, the options speculator - like the short
seller - will make money if the shares of F retreat in the near
More specifically, the strategist's profit will increase the
further F declines beneath the $10.98 level (put strike minus net
debit), as the puts would move deeper into the money and the calls
would remain worthless. Meanwhile, the investor's maximum loss is
limited to the $0.02 paid to establish the trade, should the shares
of F remain pinned between the $11 and $12 levels through
On the other hand, the trader's losses could become quite steep
if F rallies significantly north of the $12 level by December
options expiration, as his puts would expire worthless and he would
have to repurchase the sold 12-strike calls.
Technically speaking, the shares of F have skyrocketed more than
55% during the past year. The stock recently tested support in the
round-number $10 neighborhood, and could be on its way to challenge
resistance in the $13-$14 region, which has acted as a roadblock
for the equity in 2010.
However, despite the stock outperforming the broader S&P 500
Index (SPX) by about 8% during the past 40 sessions, analysts and
short sellers remain wary of F.
, more than half of the 12 analysts covering the security consider
it a "hold" or worse. Meanwhile, short interest on the equity
surged 5.7% during the past month, and now accounts for nearly 287
million F shares, or 9.4% of the stock's total available float. In
fact, at the car concern's average pace of trading, it would take
about a week for all of these bearish bets to unwind.
From a contrarian standpoint, though, Ford's solid fundamental
and technical set-ups - juxtaposed with the pessimism still
plaguing the stock - could point to a bullish opportunity. As the
shares of F continue their rebound off round-number support, a wave
of upbeat analyst attention or a short-squeeze situation could fuel
additional gains for the security - which wouldn't bode well for
that aforementioned options strategist.
Click here for the new summer issue of
All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.