Big Bull Plants Enormous Call Tree on Ford Motor (F)

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.

About Andrew Wilkinson 1023 Articles

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.


*