F – Ford Motor Company – A massive bullish transaction employing 300,000 call options launched the automaker to the top of our ‘most active by options volume’ market scanner before 11:00 am (ET) this morning. Ford’s shares are currently up 1.80% to stand at $10.80 as of 12:05 pm (ET). The options strategist responsible for the enormous three-legged spread known as a call tree appears to be positioning for Ford’s shares to rally significantly ahead of expiration day in September. The investor purchased 150,000 calls at the September $12 strike for a premium of $0.41 apiece, sold 75,000 calls at the September $14 strike at a premium of $0.09 each, and sold 75,000 calls at the higher September $15 strike for a premium of $0.05 a-pop. Net premium paid to establish the transaction amounts to $0.27 per contract, which brings the total price tag on the trade up to $4.05 million. The bullish investor starts to make money as long as Ford’s shares rally 13.6% over the current price of $10.80 to surpass the effective breakeven price to the upside at $12.27 by expiration day. The trader is poised to amass maximum potential profits of $2.23 per contract or total gains of $33.45 million if Ford’s shares trade at any price above $15.00 by expiration day in September. The sale of 75,000 calls at both the September $14 and $15 strikes implies the trader makes money on a 1-to-1 basis if shares rally above $12.00 and continue up to $14.00, but if shares rally above $14.00, profits amass on a position that is half the size of the original due to the short stance taken at the September $14 strike. Essentially the call tree was purchased by an investor expecting Ford’s shares to heat up in the next couple of months. If the stock fails to rally above $12.00 by expiration, however, the investor will lose the full $0.27 premium per contract paid to purchase the enormous trade.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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