Institutional Investors Love Ford Stock - Buying Huge, Unusual Volume of Long-Term Call Options

Some institutional investors have bought massive amounts of long-dated Ford Motor Company (F) call options, with options expiring in two and a half years. This shows they are extremely bullish on F stock.

F is up over 1.5% today to $15.37 per share and has risen almost one-third in the past two weeks, since a recent low of $11.50 on May 4 (+31.7%). However, these investors believe F could rise over $26.69, or +74% over the next two and a half years.

This can be seen in today's Barchart Unusual Stock Options Activity Report. It shows that over 9,000 call options have traded at the $25.00 strike price. This amount of calls is over 60x the prior number of options outstanding.

Moreover, the call options don't expire until Dec. 15, 2028, which is 934 days from now. That is 2.558 years from now. Wow, that is a long time. It shows that these investors are very bullish on Ford Motor Company for the long-term.

In addition, the table above, taken from the Barchart report, shows that the midpoint premium paid for these calls is $1.69. That means that, after exercising the calls, F stock has to be over $26.69 for these investors' investment to have any intrinsic value.

This is after F stock has reached 6-month and 1-year peak prices. What is going on here?

Why Institutional Investors May Be Bullish on Ford Motor Stock

Ford's latest results were lukewarm at best. Unit sales fell 3.8% YoY in Q1, and April unit volumes are now off 14.4%, or -10.4% YTD. However, total revenue rose 6.4% in Q4.

Moreover, its operating cash flow (OCF) fell from $3.7 billion last year to a positive $1.3 billion in Q1. This has led to negative adjusted free cash flow (FCF) of -$1.9 billion after capex.

Moreover, on a trailing 12-month (TTM) basis, its FCF was strong at $9.546 billion, given its strong FCF during Q2 and Q3. That represents 5.0% of its TTM $189.56 billion in revenue.

This may be what is motivating these call option buyers. They may see long-term value in F stock based on higher sales projections and FCF margins. Let's look at that.

Projecting FCF

For example, analysts forecast $178.7 billion in 2027 sales, which implies 2028 sales could be over $180 billion. That's still below its existing TTM sales. 

Moreover, using a 5.0% FCF margin, that implies FCF could hit $9 billion. Its TTM FCF was $9.546 billion, as shown above.

In other words, FCF would be just flat over the next two and a half years.

So, at best, investors may be hoping that the stock will have a higher valuation metric. Let's look at that.

Valuing F Stock

For example, right now, F stock is trading at a forward P/E multiple of 9.5x based on $1.62 in earnings per share (EPS) forecast. Moreover, for next year, they project EPS of $1.83, so F is at a forward multiple of 8.4x.

Historically, F stock has traded at an average P/E multiple of 8x according to Seeking Alpha, and 7.4x at Morningstar. In other words, F is already at a higher metric than its historical average.

Moreover, at $26.69, the breakeven point for these call options, the EPS would have to rise to $2.81 at a 9.5x multiple. That is 73% higher than the expected EPS of $1.62 for 2026.

Summary and Conclusion

The bottom line is that F stock is likely at a peak here. Unless earnings spike over the next two and a half years, this call option purchase could be speculative. Investors should be very careful to follow these institutional investors buying these long-term calls.

After all, they may simply be gambling. They may see buying long-dated calls as a way to more cheaply buy equity in Ford stock. As soon as F rises further, they may be looking to sell the call options to another speculative gambler.