Is Ford Getting Into Gear? Options Traders Say 'Yes'

Think America is slowing? Think again, say Ford option traders.

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Yesterday, as U.S. equity trading resumed, Ford reported an EPS beat for its third quarter earnings. This sent shares 8.2% higher on the day, and drew the attention of options traders.

The biggest trade of the day was the purchase of 11,111 December 12-strike calls for $0.11 each, which was done with the stock at $10.85. This is a bet that Ford will be above $12.11 at expiration, or 8.5% higher than yesterday's close.

Why bet on Ford now?

The bullishness undoubtedly comes as a result of Ford's robust domestic sales, which more than made up for weakness in Europe. Ford's North American operations posted a pre-tax profit of $2.3 billion, which is the best third quarter the region has ever recorded. This profit was driven by impressive margins, which came in at 12% and were attributed to the sales of high-end trucks. In Europe, Ford posted a $468 million loss, and said it could lose up to $500 million next quarter. Year-to-date Ford has lost $1 billion in Europe, which has led CEO Alan Mulally to announce a major European restructuring, as well as layoffs.

Though Ford's numbers this quarter are good, it is still unclear if North America can carry the company through a European recession. If Ford's European restructuring is able to minimize losses while sales remain robust in North America, the company will be fine— but that is a big "if."

Still, if you are intent on playing Ford, I like this strategy, because it keeps risk fixed and it profits from the momentum the stock might have after a great quarter like this one. Ford's chart suggests that the stock is likely to test the $12-$13 range it traded in during the first quarter of 2012, which would indeed make the December 12-strike calls a smart buy.

Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."

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