This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Options Turn Bullish on Vehicle Sector

By David Russell, reporter at OptionMonster

NEW YORK -- Worries about the global economy have hammered the vehicle sector, but options are turning bullish this week.

Companies including Navistar (NAV), Meritor (MTOR), Ford (F) and American Axle (AXL) have all seen unusual call volume as investors look for their stocks to rebound from multi-year lows. Other groups with similar activity recently, such as energy and gold miners, have rallied after trades occurred in their industries.

For example, Meritor came into Tuesday's session after with a 67% loss over the preceding year, and was near its lowest point since mid-2009. About halfway through the afternoon, buyers started snapping up the September 5 calls for 30 cents and 40 cents. Some 4,600 had traded by the end of the session, versus previous open interest of just seven contracts.

Those calls lock in the price investors must pay to buy shares in the company, which makes drive trains and brakes for trucks and trailers. They can generate significant leverage in the event of a rally but will expire worthless if the stock fails to move. Traders like calls because they're a cheap way to play short-term moves while limiting the amount of capital at risk.

The company, which saw its shares rise 6.36% to $4.68 Tuesday, reports third-quarter results Wednesday morning. The fact that traders chose calls in September instead of August reflects a belief that the stock may not rally immediately after the release but will push higher over the intermediate term.

Overall option volume in the name was 20 times greater than average, with calls outnumbering puts by 18 to 1.

Russell has no positions in the stocks mentioned in this article

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%
YHOO $44.52 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports