Ride the Bull Into Ford Stock

The financial community is pretty optimistic about Ford's prospects heading into earnings. Here's one trade to make.

   
Ride the Bull Into Ford Stock

Ford Motor Co. (F) joins the earnings parade Friday, and Ford stock investors (and prospective buyers) are tempering their expectations for the automaker.

Wall Street is expecting Ford’s first-quarter earnings to decline 24% to 31 cents per share, even as revenue is seen rising 0.6% to $34.06 billion. The disconnect has to do with Ford doubling the number of new model rollouts globally and tripling them in North America in a move that sacrifices short-term earnings for longer-term gains.

At least, that’s the hope.

Another factor that Ford stock investors will be keeping an eye on is the situation at CEO. According to reports at Bloomberg, Ford is preparing to announce that Mark Fields will be replacing outgoing CEO Alan Mulally. Mulally’s official departure date will be in focus, as well as his role, if any, going forward with Ford. Mulally is largely credited with saving Ford from bankruptcy, making any involvement with Ford going forward a point of focus for investors.

Turning to the sentiment picture for Ford stock, the brokerage community is largely optimistic when it comes to the company’s future. Specifically, Thomson/First Call reports that 10 of the 18 analysts following Ford stock rate it a “buy” or better, with only one “sell” rating on the docket.

That said, the 12-month price target of $18 could use an upward revision or two, representing a premium of only about 9% to F’s current perch.

Options traders, meanwhile, appear to be considerably more bullish. In fact, Ford stock’s weekly April 26 put/call open interest ratio currently rests at 0.29, with call open interest more than tripling put open interest in this soon-to-expire series.

Peak call open interest resides at the in-the-money April $16 strike, totaling 26,551 contracts, while another 20,882 calls are open at the April $16.50 strike. Peak put open interest of 9,784 contracts at the April 16 strike is paltry by comparison.

042414Ford 300x247 Ride the Bull Into Ford Stock
Click to Enlarge
Overall, Ford stock weekly April 26 implieds are pricing in a potential post-earnings move of about 3%. This places the upper bound near $17, while the lower bound lies at about $16. These levels roughly correspond with current support/resistance levels for Ford stock, though the 200-day moving average at $16.22 and long-term resistance/support at $16.50 could play spoiler roles on any post-earnings move.

Options Trade on Ford Stock

If you are looking to follow the prevailing winds in the options pits, a May $16/$17 bull call spread has a good chance of hitting its maximum profit. At the close of trading on Wednesday, this spread was offered at 34 cents, or $34 per pair of contracts. Breakeven lies at $16.34, while a maximum profit of 66 cents, or $66 per pair of contracts, is possible if Ford stock closes at or above $17 when May options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2014/04/ford-stock-bull-options/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.