Call volume surged in Ford Motor this morning, but was it bullish?
Check out the large options trade that took place shortly after the open:
- Some 31,800 October 14 calls were purchased in two blocks for an average premium of $0.31.
- At the same times, a trader sold the same number of October 14.50 calls $0.18.
- Volume was below open interest in 14s, which suggests he or she rolled an existing position up from the lower strike.
Calls fix the potential purchase price of a security, so they can gain value when shares appreciate. Investors can also sell covered calls against a stock they own, earning near-term premium in return for surrendering potential upside over the longer term.
Today’s option trader apparently owned at least 3.18 million F shares and had previously sold the October 14 calls. When the stock jumped over $14 this morning, they bought back the calls and sold a new set of contracts at the higher strike.
Making the adjustment cost $0.13, the difference between the $0.31 paid and the $0.18 collected. As a result, they now have the right to make $0.50 more on the stock appreciating. The transaction is bullish overall because they paid money in hope of further upside.
It’s also bullish because it increased their net delta by selling calls further from the money with lower deltas. (Short calls have negative delta, so lower absolute deltas translate into higher values mathematically.) In this case they went from being short 70 deltas on the 14 calls to being short 30 deltas on the 14.50s.
F rose 2.69 percent to $14.15 on Monday. There wasn’t any clear news to explain the move, but it came amid a rotation to other automakers including Tesla (TSLA) and General Motors (GM). F also had some potentially bullish chart patterns after breaking a downtrend two weeks ago.
Overall, F had the most call volume in nearly two months. The upside contracts also dominated the activity, outnumbering puts by almost 5 to 1.