Ford Motor F shares drifted lower along with the broader market Tuesday, down roughly 2.2% to $11.80, breaching the 12 strike. Perhaps seeing this is a buying opportunity, a large-scale investor put on a bullish intermediate-term trade to bank on upside through the end of the year.
The December 12 and 13 calls both saw nearly 15,000 contracts change hands yesterday. A series of large blocks hit the tape in rapid succession within the first hour of trading. The 12-strike calls traded at an average price of $1.02 per contract, which was at or near the ask price at the time. The further-from-the-money 13 calls traded in similar blocks for 57 cents apiece (at or near the bid price).
It looks as though this investor bought the 12 call and sold the 13 call, paying a net debit of 45 cents per bull call spread. This 45-cent premium is the most the investor can lose, and he will do so if Ford is still trading below the 12 strike at expiration. Maximum profit, achieved if F is trading above the short strike ($13) at December options expiration, is 55 cents (the difference in long and short strike less the debit).
Breakeven for the strategy is $12.45; if Ford is trading above this level when the options expire, the spread will be profitable. Of course, as we saw demonstrated last Friday, the majority of options are closed ahead of expiration.
There wasn’t any notable news on Ford yesterday, but last week the American automaker reported that August sales slipped 11% on a year-over-year basis to 157,503. The company also announced plans to produce 570,000 vehicles in the fourth quarter of this year; this is a modest reduction from the 574,000 manufactured in the same period of 2009.
Photo Credit: Bill McChesney
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