Ford Motor Company (NYSE: F) has had a big adjustment recently to the downside following the inverted head-and-shoulders pattern than emerged this summer.

Manufacturing and economic data has been a real drag on stocks, and Ford in particular has struggled. However, the stock is at support, and there is strong volume flowing into the short-term calls. These traders are using options trading information and looking for a bounce at support and are heavily biased toward a big rally before September’s expiration.

Trade:

Buy to open the F Oct 13 Calls.

Target Entry Price:

The market is easing off a little today, so I recommended using limit order for $25 per contract or less.

Exit Forecast:

Ford is either going to work out as a big winner in the short term or not, so I don’t expect we will have to wait very long to start planning an exit. At this point we would consider the trade a success if the stock moved up $2 to $13.75. If that were to happen quickly, we would expect the option to be up 300% or more in value.

Position Sizing:

This is a very speculative trade, which is one of the reasons we are using an out-of-the-money (OTM) strike price. I would recommend using about half of your normal size on this trade. It is a long option so the total purchase price is equal to the capital at risk. This makes the calculations for consistent position sizing very easy.

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