Why traders are selling puts in Ford


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Ford Motor is dropping along with the rest of the market today, but one investor sees a bottom.

optionMONSTER's tracking systems detected heavy selling of the July 9 puts, which traded 13,696 times against open interest of 10,224 contracts. Most of transactions priced for $0.12 and occurred amid a fit of bearish activity in the stock shortly after the open.

F Chart F fell 4.77 percent to $9.93 in morning trading and is down 15 percent in the last month. The automaker has been drifting lower since mid-April after staging a huge rally off the 2009 market lows, and yesterday closed below its 200-day moving average (purple line on chart) for the first time in 15 months.

Today's put sale reflects a belief that F will stay above $9 through July 16. The strategy is common at this point in the trading cycle because out-of-the money options lose value at an accelerating pace as they near expiration.

The trader also targeted the contract with the highest implied volatility, 56 percent, while F's overall implied volatility is 48 percent. If the market holds its ground and avoids further significant downside, volatility will drop or stabilize, also favoring the put seller.

Overall options volume in the stock is about 46 percent greater than average so far today.

(Chart courtesy of tradeMONSTER)

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

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This article appears in: Investing , Options

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