Options Report: Ford Shines, Bed Bath and Beyond Stumbles
Options volume in Ford Motor swelled Thursday as bulls moved in with force to snap up call options, or bets that Ford's stock will rise further above the 52-week high that shares reached today.
Call volume in the July contracts, which are options that will expire on the third Friday of July, overwhelmed put volume by a margin of about 8 to 1.
The heaviest activity was seen in the Ford $8, $9 and $10 July call strikes. Speculators also snapped up the Ford September 10 calls with volume at midday exceeding 50,000 contracts.
"Options buyers would need to see shares rally above $10.50 in this case before they turn a profit," said Andrew Wilkinson, senior market analyst with Interactive Brokers.
A call option gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. Put options give the investor the right to sell an underlying security at a specified price within a specific time period.
The rise in Ford coincides with a rally in shares of General Motors, which also hit a 52-week high after it sold its Allison Transmission unit for a greater-than-expected $5.6 billion to private-equity firms Carlyle Group and Onex.
Bearish on Bed Bath and Beyond
Shares of Bed Bath and Beyond were under pressure through the trading day. While the home furnishings retailer posted quarterly earnings that exceeded its most recent guidance, the company lowered its full-year profit forecast.
Interactive's Wilkinson noted that speculators have been making bearish bets on Bed Bath and Beyondthrough the purchase of put options.
Volume in the July 35 strike, or a bet that the stock will fall to $35 or less by July expiration, surged past 17,000 contracts, eclipsing previous open interest of just over 10,000 contracts.
Open interest is the total number of options contracts that are not closed as of the previous trading day.
"Those puts are trading at around 0.30, implying a break-even of $34.70 for a bear play," said Wilkinson, who also notes that July 37.5 puts also "traded on a decent 4,000 lot volume."
Other Unusual Situations
There's been little trading in options of JP Morgan in the Thursday session. One exception was a series of large purchases of JP Morgan December 35 puts. That's a bet that the stock, now trading in the high 40's, will fall to $35 by expiration in December. Volume totaled more than 15,000 contracts in the December 35 puts.
Volume in Apple options remains heavy ahead of the sale of the iPhone. Some of the largest bets are being executed in the August call contracts, where more than 13,000 August 150 calls have traded. That's a bet Apple will surge to at least $150 by expiration in August.
Interactive Brokers' Wilkinson says it is not inconceivable that market players are carrying out call spread strategies where they would sell the Apple August 140 calls and buy the Apple August 150 calls to reduce the cost of a bullish speculation.
Not every speculator is looking at Apple from a bullish perspective. Volume of 1,000 contracts or more has accumulated in the July Apple puts all the way down to the $100 put strike.