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Bearish Ford Option Trader Bets $1.1M Stock Is Headed Lower Over The Next 2 Years

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Bearish Ford Option Trader Bets $1.1M Stock Is Headed Lower Over The Next 2 Years

Ford Motor Company (NYSE: F) shares gained 2.3% on Tuesday and are now up 62.8% in the past six months. However, one large option trader is making a big bet Ford shares are headed lower in the long-term.

The Ford Trades: On Wednesday, Benzinga Pro subscribers received several alerts related to unusually large Ford option trades. Four of the trades stood out because of their size and timing:

  • At 12:54 p.m. ET, a trader bought 904 Ford put options with a $15 strike price expiring in January 2023. The contracts were purchased near the ask price at $6.60 and represented a $596,640 bearish bet.
  • At 12:54 p.m. ET, a trader bought 277 Ford put options with a $15 strike price expiring in January 2023. The contracts were purchased near the ask price at $6.60 and represented a $182,820 bearish bet.
  • At 12:54 p.m. ET, a trader bought 529 Ford put options with a $10 strike price expiring in January 2023. The contracts were purchased near the ask price at $2.771 and represented a $146,585 bearish bet.
  • At 12:54 p.m. ET, a trader bought 279 Ford put options with a $15 strike price expiring in January 2023. The contracts were purchased near the ask price at $6.60 and represented a $184,140 bearish bet.

Why It's Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader. Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size and the timing of the Ford option trades, there’s certainly a possibility they could be an institutional hedge on a large position in Ford stock.

Related Link: Amazon Option Trader Makes $4.7M Bet On 42% Upside

EV Onslaught Coming: The big bearish bets against Ford come after Morgan Stanley downgraded Ford on Nov. 25. Analyst Adam Jonas said Ford’s EV strategy isn’t clear and the company may have a difficult time fending off EV competitors in the coming years.

“We think Ford has the sense of urgency on EVs, but the strategy is still not fully clear to us,” Jonas wrote in the note.

At the same time Ford is struggling with its EV transition, its European business is also struggling. In addition, Jonas said Ford is falling behind in building its presence in China, which many auto companies see as a large, long-term growth source in coming years.

Given all four of the large trades mentioned above were executed within a minute of each other and all the contracts had January 2023 expiration dates, they most certainly came from the same buyer. The buyer may have deliberately broken the $15 put purchase into three trades in an attempt to draw less attention to the buys. Altogether, the trader’s bearish bet on Ford totaled more than $1.1 million.

 

Benzinga’s Take: It’s unclear what the bearish put buyer’s exact thesis on Ford is, but the fact that the puts have expiration dates more than two years in the future suggests the buyer is making a fundamental bet against Ford’s business rather than a short-term bet on a technical pullback or bearish near-term catalyst.

The break-even price on the $15 put options is $8.40, suggesting at least 9.8% downside for Ford over the next two-plus years.

Latest Ratings for F

DateFirmActionFromTo
Nov 2020Morgan StanleyDowngradesOverweightEqual-Weight
Nov 2020UBSMaintainsNeutral
Nov 2020JefferiesMaintainsBuy

View More Analyst Ratings for F
View the Latest Analyst Ratings

 

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