Bloomberg news reported this morning that shares of Ford Motor Co. (F), viewed for years by options traders as a safer bet than General Motors Co. (GM), have suddenly gotten riskier.
Ford?s implied volatility, an indicator of demand for contracts that protect against losses in stocks, has risen to 1.003 times GM contracts, according to three-month data compiled by Bloomberg. Two weeks ago, it was the highest ever.
The catalyst for the jump came when the second-largest U.S. carmaker said in September it will miss profit forecasts this year, according to Max Breier at BMO Capital Markets Corp. Ford hedges have cost more than GM?s for 18 straight days, the longest streak since 2011.
That announcement ?forced the implied volatilities between the two automakers to converge, and they?ve converged even more since,? Breier, a senior equity derivatives trader at BMO in New York, said by phone Dec. 5. ?The further out in time you go, the more volatility the market assigns to Ford than GM, which speaks to more the relative uncertainty of Ford over GM.?
Implied volatility for GM options has closed higher than Ford?s about 80 percent of the time since the Detroit-based company?s shares started trading again on the New York Stock Exchange in 2010, three-month Bloomberg data show. GM has endured a wave of recalls, including one this year of 2.59 million small cars to fix a defective ignition switch blamed for 38 deaths, and a change in leadership in that period.
To Read More Click Here.