Worries about the global economy have hammered the vehicle
sector, but options are turning bullish this week.
Companies including Navistar, Meritor, Ford, and American Axle have
all seen unusual call volume as investors look for their stocks to
rebound from multi-year lows. Other groups with similar activity
recently, such as energy and gold miners, have rallied after trades
occurred in their industries.
MTOR, for instance, came into yesterday's session after with a 67
percent loss over the preceding year, and was near its lowest point
since mid-2009. About halfway through the afternoon, buyers started
snapping up the September 5 calls for $0.30 and $0.40. Some 4,600
had traded by the end of the session, versus previous open interest
of just 7 contracts.
calls lock in the price
investors must pay to buy shares in the company, which makes drive
trains and brakes for trucks and trailers. They can generate
significant leverage in the event of a rally but will expire
worthless if the stock fails to move. Traders like calls because
they're a cheap way to play short-term moves while limiting the
amount of capital at risk. (See our
Meritor, which saw its shares rise 6.36 percent to $4.68 yesterday,
reports third-quarter results this morning. The fact that traders
chose calls in September instead of August reflects a belief that
the stock may not rally immediately after the release but will push
higher over the intermediate term.
Overall option volume in the name was 20 times greater than
average, with calls outnumbering puts by 18 to 1.
(A version of this post appeared on