Options Alert: Big Investor Adjusts Upside Trade In Ford Motor


Ford Motor has jumped as its business roars back to life, and one options trader is giving the automaker more room to run.

Check out this unusual options activity in F this morning:

  • Some 20,000 August 16 calls were purchased for $0.25 against open interest of 68,700 contracts.
  • A matching number of 2-September 17 calls were sold at the same time for $0.18, exceeding open interest of 809 contracts.

Given the differences in open interest, it appears that a trader exited a short position in the August 16s and sold the longer-dated contracts. Making the adjustment cost $0.07, so why would they do it?

First, remember that investors can own calls to fix the entry price on a security. They can also sell them against stock they already own as part of a covered-call strategy. That lets them collect some premium up front and obligates to deliver shares if a certain level is reached.

In the case of today’s transaction, it appears that the investor owns about 2 million F shares and previously sold the August 16 calls. Now that the stock has rallied, he or she bought them back and replaced them with the 2-September 17s. While it cost a net $0.07, rolling the position creates the potential for another $1 of upside. It also provides an additional two weeks for the stock to climb.

Ford Motor (F), daily chart, showing key levels associated with the options trades in this article.

Ford’s Electric Vehicles

F slid 1 percent to $15.22 in midday trading, but is up 30 percent in the last month. That gain makes it the fourth-best performer in the S&P 500 over the period, according to TradeStation data.

The rally follows a stream of positive news in the Dearborn, Michigan-based company. It began on July 17 when Morgan Stanley saw little incremental downside risk after the stock’s big slide since January. F then shifted resources toward electric cars, with Bloomberg reporting it would cut as many as 8,000 jobs in its legacy internal-combustion business.

Next came a big quarterly report on July 27, with earnings and revenue shooting past consensus estimates. Management also raised the dividend by 50 percent. Monthly sales subsequently jumped 37 percent in July, contrasting with the broader industry’s 11 percent decline.

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