It looks as if the Reddit/wallstreetbets crowd is at it again. In Tuesday’s column, we mentioned the unusual option volume in Rocket Companies (RKT) and surprise, surprise, that stock was up 71% yesterday.
We were looking at the March 19th 25 strike call at around $1.70 which then traded as high as $18 yesterday for a gain of 894%. Wow!
Ford stock is rated second in the Auto Manufacturers Group behind Tesla (TSLA).
From a technical perspective, Ford stock is above the 21-day, 50-day and 200-day moving averages and the averages are all sloping upward.
Yesterday, the most actively traded option on Ford stock was the March 12th 12.5 strike call with volume of 73,600.
Meanwhile, that contract traded between a price of 15 cents and 59 cents, and closed the day at 43 cents.
And if a trader were to buy the March 12th 12.5 strike call, they would need the stock to rise above 12.93 (the strike price plus premium paid) at expiration to be profitable.
Long Calls In Ford Could Make Large Profits
The potential upside is unlimited. That’s why traders are attracted to buying out-of-the-money call options.
Long calls can be very profitable when a stock makes an explosive move higher. However, they can also lose value very quickly if the stock drops or stays flat.
But perhaps Ford stock will shoot higher today as RKT stock did yesterday.
With a trade like this, there isn’t much time for adjusting or a stop loss, so only invest money you can afford to lose.
It’s important to remember that options are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
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