Positive Ford (F) earnings sparks straddle

By
A A A

Options action during midday trading in Ford Motor Co. (NYSE: F ) suggests investors are looking for volatility to decline during the long term. An investor appears to have boosted options volume due to expire in March by selling the at-the-money (ATM) straddle.

Around 12:06 p.m. EDT, 3,500 F March 13 straddles changed hands for $3.20 per spread. The ATM March 13 calls crossed the tape for $1.60 per contract while the ATM March 13 puts changed hands for the same amount. Both legs were sold as part of a short straddle position betting on a range in the stock during the next several months.

This short straddle position will turn a maximum profit of the credit collected, or a total of $1.12 million, if F shares are trading right at $13 at March 2011 options expiration. The investor gets to retain some but not all of the premium if the stock is trading higher than $9.80 or lower than $16.20 when the options expire. In the event that volatility spikes or if F shares drop below the lower breakeven or soar higher than the upper breakeven price, the investor loses money on this trade. The investor could lose a maximum of $9.80 to the downside or theoretically incur unlimited losses to the upside.

On July 23, F announced earnings of 68 cents per share. This figure beat estimates by a whopping 28 cents. The positive news sent F shares to a recent high of $13.15 on July 23. The stock has since pulled back slightly and was trading around $12.96 as of 1:20 p.m. EDT. Around 11 a.m. EST, UBS raised its target price on F to $17 from $15.



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



This article appears in: Investing , Options

Referenced Stocks: F

Karla Yeh

Karla Yeh

More from Karla Yeh:

Related Videos

Can You Trust CarFax?
Can You Trust CarFax?               

Stocks

Referenced

83%

Most Active by Volume

122,589,582
  • $16.175 ▲ 4.22%
46,284,490
  • $55.89 ▲ 4.66%
31,559,323
  • $10.08 ▲ 9.92%
31,473,918
  • $37.30 ▲ 6.21%
26,909,114
  • $35.135 ▲ 1.84%
25,821,736
  • $100.775 ▲ 0.20%
24,015,472
  • $30.09 ▼ 0.79%
22,454,478
  • $8.24 ▲ 1.35%
As of 8/21/2014, 03:07 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com