Traders look for auto maker to accelerate
10/03/17

At least one big trader seems to think a key automaker will accelerate in the coming months.

The industry has been shifting into gear since the summer, led by rallies in Fiat Chrysler (NYSE: FCAU), General Motors (NYSE: GM), and Ferrari (NYSE: RACE). Analysts point to a strong economy, expected demand for replacement vehicles after hurricanes, and a potential shift toward higher-margin sales.1

But Ford Motor (NYSE: F) has been left in the dust, and trailed its faster-moving rivals by a wide margin. Yesterday, a trader adjusted a large options strategy, apparently looking for the stock to move into the fast lane:

  • Less than two hours into the session, they sold 14,247 December 13 calls for $0.09. They bought a matching number of November 12 calls at the same time for $0.36, apparently closing an existing short position. 
  • Unloading one and loading up on another simultaneously? What’s it mean?
  • Owning calls fixes the price where investors can purchase a security over a certain time frame, while writing them creates an obligation to deliver stock if a given level is reached.
  • Monday’s trader almost certainly owned F shares and had previously sold the November 12s as part of a covered-call strategy. They then bought the contracts back and rolled to the higher strike.
  • Making the adjustment gives them open road to another $1 of potential upside on the shares. It also cost $0.27 keeps them in the position for an additional month. 
Ford (F) 7/6/17 - 10/2/17 chart

Source: OptionsHouse by E*TRADE.

F ended the session up 1 percent to $12.09–pretty close to the $12 level for the calls they unwound. Aside from being a nice round number, it matches F’s lows between June and September of 2016. That could make some chart watchers view it as resistance, with the potential for a sharp move should it break.

Investors may expect a catalyst as soon as today because the company is slated to announce September monthly sales in the morning, followed by CEO Jim Hackett’s strategy presentation in the afternoon. Then on October 26, quarterly results are due. 

In addition, some traders may notice that F made successively higher lows each day last week. Technicians call that an ascending triangle, which is usually viewed as a bullish pattern.

Bottom line: F has lagged peers, but at least one big trader is apparently looking for the stock to accelerate into yearend.

 

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1. RTT News: U.S. Consumer Sentiment Drops Slightly More Than Estimated In September. 9/26/17. Marketwatch: U.S. car sales fall sharply in June as prices rise. 7/3/17. Insurance Journal: Hurricane Claim Insurance Checks Drive New Car Sales. 10/2/17.