Bulls roll out in Ford Motor (NYSE: F)

A year ago, who would have thought one of the hottest stocks in the market would be an American automaker? Sure enough, Ford Motor (NYSE: F) has been one to watch. Its monthly sales recently overtook chief rival GM’s for the first time in 12 years and since mid-March of last year, the shares have zoomed from the two level to above 14.  The company scored a ratings upgrade from Moody’s, and earlier this week, CNBC’s Jim Cramer expressed bullish sentiment on the stock, projecting a rise to 17.

Yesterday, Ford shares took a step back, losing 37 cents to $13.73, and some option traders took advantage of this pullback to hop into bullish trades. In the short-term, a trader appears to have bought April 15 calls and simultaneously sold April 16 calls, building a bull call spread that will succeed if Ford rallies through 15 by April options expiration. If this was in fact the strategy being created, the investor can lose, on average, as much as 24 cents per spread but can gain 76 cents per spread, for a return on risk of 316% for this moderately bullish trade. More than 35,000 contracts traded at the 15 strike; more than 25,000 traded at the 16 strike, and it appears a large portion of this volume crossed the tape as spreads.

In the longer-term, the September 16 call was in focus, as more than 30,000 contracts changed hands. The large majority of these positions traded to open, boosting open interest this morning to 27,205 from 3,063. Shortly before 2:00 PM yesterday, a block of 15,000 changed hands near the ask price at 90 cents (giving the block a value of $1.35 million). If the call buyer plans on holding these position to expiration, Ford will have to rally another 23% between now and September 17th to move above the breakeven price of $16.90. The call buyer only stands to lose 100% of the 90-cent premium paid if these options expire worthless. Of course, between now and then, increases in the stock price or in implied volatility could lift the value of the option, prompting an early exit.

When all was said and done, F options traded more than 370,000 contracts, after trading more than 240,000 Wednesday.  That is close to three times the daily norm, demonstrating just how brisk the action has been in F.  On March 4^th, the ONN team added a buy-write in F to our premium portfolio.  Check it out if you are looking for free ideas on how to add some alpha to your portfolio.

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More on F:

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