Market Overview

A Look At A Flurry Of Large Ford Option Trades

A Look At A Flurry Of Large Ford Option Trades

Ford Motor Company (NYSE: F) shares traded lower on Tuesday following news that the auto giant is investing $275 million in a new joint venture in India. Also, Buckingham Research lowered its price target on the stock from $9 to $8.

Despite the price weakness, some large options traders are making some big bets on a near-term Ford rebound.

The Trades

On Tuesday morning, Benzinga Pro subscribers received 10 option alerts related to unusually large trades of Ford Oct. 11 calls with a $8.50 strike price. All 10 trades took place within about an hour’s time, from around 10:13 a.m. to 11:15 a.m.

Exactly half of the trades were bullish buys that took place at or near ask prices ranging from 62 cents to 68.1 cents. The total number of calls purchased was 5,010, a total bullish bet of more than $300,000.

The other five trades were bearish sells that were executed at or near bid prices within a similar range. The total number of calls sold was 4,581, a total bearish bet of more than $280,000.

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 modest sizes of the 10 individual Ford call trades they were unlikely to be institutional hedges in this instance.

India A Catalyst?

While the India news may create long-term growth opportunity for Ford stock, the negative market reaction and the mixed option trading on Tuesday suggests the $275 million price tag for the Mahindra deal may be more important for investors than the long-term outlook of the Indian auto market.

News of Ford’s large investment comes after the U.S. reported its weakest manufacturing data in a decade. The last thing auto investors need is a broad economic downturn in the middle of an already weak global auto market.

Benzinga’s Take

Given the India news and the large option trades happened on the same day, it might be tempting to connect the two. However, India likely won’t make much of a difference for Ford one way or another before the Oct. 11 expiration date of the calls being bought and sold.

It’s much more likely that the five buys and five sells came from one large day trader attempting to capitalize on Ford’s volatility on Tuesday morning.

Do you agree with this take? Email with your thoughts.

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How To Read And Trade An Options Alert


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