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Jobs Report Drives Heavy Trading Traffic In Ford, General Motors Options


Today’s tickers: F, GM, MAS & GILD

Options commentary to resume on Thursday February 9th.

F – Ford Motor Co. – The better-than-expected jobs number out this morning revved up investor appetite for automobile stocks, driving shares in Ford Motor Co. up 4.0% to $12.75. Call options on the U.S. automaker are flying off the shelves, with nearly 5 calls in play on the stock for each single put option traded. The single-largest transaction in Ford options appears to be a bull call spread that yields maximum possible profits if the price of the underlying rallies nearly 20.0% during the next few months to expiration. It looks like one trader purchased a 30,000-lot April $14/$15 call spread for a net premium of $0.15 per contract. The position may be profitable at expiration if shares in Ford Motor Co. climb 11.0% to surpass the effective breakeven price of $14.15. Maximum potential profits of $0.85 per contract are available on the spread should shares in the auto manufacturer surge 17.6% to exceed $15.00 by expiration. Overall options volume on Ford is up above 175,000 contracts just before 1:00 p.m. ET.

GM – General Motors Co. – GM’s shares are outperforming fellow U.S. automaker, Ford Motor Co., this afternoon, with the stock trading 8.4% higher on the session at $26.35 as of 12:55 p.m. in New York. Optimism spurred by this morning’s stronger-than-expected jobs report was followed by greater-than-usual options action in the name. A debit put spread in the March expiry, which may be an outright bearish bet that the rally is running on empty, or an attempt to hedge a long stock position, caught our eye this morning. It looks like the trader responsible for the spread purchased a 4,000-lot Mar. $22/$25 put spread at a net premium of $0.67 per contract. Profits, or downside protection, kick in if shares in General Motors decline 7.7% to breach the effective breakeven price of $24.33 by expiration next month. Maximum potential profits of $2.33 are available on the position in the event that the price of the underlying drops 16.5% to settle below $22.00 at March expiration. GM is scheduled to report fourth-quarter earnings ahead of the opening bell on February 16.

MAS – Masco Corp. – Better-than-expected economic data, including a strong jobs number and dip in the unemployment rate, sent U.S. equities into rally-mode on Friday. Shares in home improvement products manufacturer, Masco Corp., joined in on the broad market run, rising 3.6% to $12.89 by 11:00 a.m. in New York. Signs that employment is improving is positive for the housing recovery story. The single-largest transaction in Masco Corp. options this morning may be one trader’s way of positioning for strength in the sector to continue. It looks like the investor purchased a block of 5,000 calls at the Mar. $13 strike for a premium of $0.70 each. Profits are available on the position in the event that Masco’s shares rally another 6.3% to surpass the effective breakeven price of $13.70 by expiration. The calls appear to have been purchased outright to establish a bullish stance, rather than purchased in combination with the sale of stock to hedge a bearish bet that shares may pullback by March expiration. Of course, it’s always possible the investor already holds a long or short position in the underlying shares, which could perhaps change the interpretation of the options trade. Masco Corp. is scheduled to report fourth-quarter earnings after the final bell on February 13. The trading day that follows could turn out to be a very happy Valentine’s Day for the call buyer and Masco Corp. investors alike if the performance results prove pleasing to the market. Masco’s shares are up nearly 20.0% since the start of 2012.

GILD – Gilead Sciences, Inc. – Options traders jumped on Gilead Sciences straight out of the gate Friday on reports of positive clinical trial results for an experimental Hepatitis C treatment acquired through the Company’s purchase of biotechnology firm, Pharmasset, Inc. Bullish action in Gilead options this morning suggests some strategists are positioning for the stock to extend gains. The shares currently stand 8.6% higher on the day at a new two-year high of $53.55 as of 12:10 p.m. on the East Coast. Front-month call options are most active at the Feb. $55 strike, where more than 3,500 contracts have changed hands. It appears the majority of the volume was purchased for an average premium of $0.92 apiece. Traders long the calls may profit at expiration if shares in Gilead Sciences rally another 4.4% to top the average breakeven point at $55.92. Call buying spread to the higher Feb. $60 strike, as well, with roughly 835 contracts purchased at an average of $0.08 each. March expiry call options are changing hands at a clip, as well, with some 8,500 of the Mar. $55 strike calls in play against open interest of 1,033 contracts in early-afternoon trade. Overall, traders are exchanging more than two call options on the drug maker for each single put option in action, out of total daily options volume in excess of 57,000 contracts thus far today.


Caitlin Duffy

Equity Options Analyst

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