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Ford Stock: What Options Are Saying

Ford Motor gapped up to a 15-month high Monday morning, following bullish options activity last week.

Call buying lit up OptionMonster's tracking systems Friday as investors poured money into the August 8 contracts. Those options were valued at $0.71 to $1.08 this morning after trading $0.15 to $0.47 on Friday. That represents profits ranging from 51 percent to 720 percent.

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In contrast, at its highest point this morning, Ford stock was only up 11 percent to $8.86. The difference highlights the huge leverage available to investors who employ the power of options to earn greater returns from movement in underlying stock prices.

Ford is up 280 percent so far this year, as investors price in the company's recovery from distressed levels during the financial crisis.

The auto maker reported Monday that its U.S. auto sales rose 2.3 percent in July, its first year-over-year monthly sales increase since November 2007, thanks in part to the U.S. government "Cash for Clunkers" program.

Another positive catalyst for the company is a likely increase in auto production, which has been running far below replacement levels in the U.S. for several months. As an economically sensitive stock with substantial financial leverage, Ford will outperform the broader market in the early stages of a recovery.

Volume in the August 8 calls reached 23,368 contracts, down by two-thirds from Friday's level, when open interest in the strike more than quadrupled. Other active options from last week were the September 7 calls, which traded for $1.67 to $2.02, up from a range of $0.80 to $1.30 on Friday.

Overall options volume in Ford was 51 percent above average so far today, with calls outnumbering puts by more than 2 to 1.

  • Picks & Pans: What CNBC's Guests Are Saying

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CNBC Slideshows:

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Other Auto Makers:

Toyota Motor

General Motors/Motors Liquidation

Honda Motor

Nissan Motor

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David Russell is a reporter and writer for OptionMonster.

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