Shares of Ford are jumping Tuesday, after investors saw two very bullish pieces of data. The S&P Case-Shiller home price index rose to the highest level in seven years, and the consumer confidence index jumped to a five-year high.
One option trade bought into Ford strength Tuesday morning, picking up 3,500 15.5-strike weekly calls for 8 cents. This is a bet that Ford could rally 2.3 percent by this Friday's close.
Strong housing numbers are good for Ford, because they indicate that there will be strong demand for Ford's trucks. And there is another piece of good news for truck sales, gasoline prices are expected to be relatively flat through the rest of 2013.
Besides the positive macro fundamentals, there are additional reasons to invest in Ford. Some analysts have predicted that the European economy has reached its low point, and will soon be showing some growth in the near future.
This would boost European consumption, and as a result, would increase demand for automobiles on the European continent, where Ford had about an 8 percent market share as of April 2013.
The Ford Fiesta was the top-selling car in Europe for the first quarter of 2013, and European customers purchased a new Ford Fiesta every two minutes in March.
Ford has recently engaged in a deal with local authorities in France to invest $162 million, and the company has guaranteed to retain workers in their southwest French factory for the next five years. This shows that Ford is committed to maintaining its European presence.
A more optimistic view on the U.S. economy, and an increasingly positive job outlook, have helped consumer confidence reach a five-year high. Ford should be able to capitalize on an increase in consumer confidence, as it has the second-largest market share in the U.S.
Ford trades at roughly 10 times its projected 12-month earnings, which a far lower multiple than GM enjoys. This is what pushed Ford along to lead auto producers Tuesday morning.
I have no position in Ford, but seeing traders buy cheap out-of-the-money options has to make you think that Ford could push significantly higher in a very short time. In addition, the chart is indicating a breakout, and I just might look to add some calls with defined risk to my positions.
If I do, I'll be sure to tweet about it!