U.S. Markets closed

Analyzing Ford Motor's Unusual Options Activity

Benzinga Insights
·2 mins read

Shares of Ford Motor (NYSE: F) saw some unusual options activity on Wednesday. Following the unusual option alert, the stock price moved up to $6.89.

  • Sentiment: BEARISH

  • Option Type: SWEEP

  • Trade Type: PUT

  • Expiration Date: 2020-11-20

  • Strike Price: $7.00

  • Volume: 2012

  • Open Interest: 938

Three Indications Of Unusual Options Activity

Extraordinarily large volume is one indication of unusual options activity. Volume refers to the total shares contracts traded in a day when discussing options activity. Contracts that have been traded, but not closed by a counter-party, are called open interest. A purchased contract cannot be considered closed until there exists both a buyer and seller for the option.

When a contract has an expiration date in the distant future, it is generally another sign of unusual activity. Usually, additional time until a contract expires allows more opportunity for it to reach its strike price and grow its time value. Time value is important to consider because it represents the difference between the strike price and the value of the underlying asset.

“Out of the money” contracts are unusual because they are purchased with a strike price far from the underlying asset price. “Out of the money” occurs when the underlying price is under the strike price on a call option, or above the strike price on a put option. Buyers and sellers try to take advantage of a large profit margin in these instances because they are expecting the value of the underlying asset to change dramatically in the future.

Bullish And Bearish Sentiments

Options are “bullish” when a call is purchased at/near ask price or a put is sold at/near bid price. Options are “bearish” when a call is sold at/near bid price or a put is bought at/near ask price.

Although the activity is suggestive of these strategies, these observations are made without knowing the investor’s true intentions when purchasing these options contracts. An observer cannot be sure if the bettor is playing the contract outright or if they’re hedging a large underlying position in a common stock. For the latter case, the exposure a large investor has on their short position in common stock may be more meaningful than bullish options activity.

Trading Options With These Strategies

Unusual options activity is an advantageous strategy that may greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain as another tool to make an educated investment decision while taking other observations into account.

For more information to understand options alerts, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts

See more from Benzinga

© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.