The past couple weeks in Ford Motor Company (NYSE:F) have been marked by “Trump, dump and now jump.” But what does that mean for anyone invested in F stock?
Well, it could mean it’s time to shift into a new strategy to maximize your returns.
“Trump, dump and now jump.” Immediately following Donald Trump’s Nov. 8 election win, investors decided to take The Donald at face value on his pledge to “Make America Great Again.” Interestingly, that was bad news for F stock.
Shares of Ford sank back toward multiyear lows as Trump’s blustering hardline stance on the North American Free Trade Agreement spooked Wall Street. If a new policy were initiated down the road, the impact would be a negative for Ford due to its operations in Mexico.
Fast forward a couple weeks, and let’s just say the initial worry has worn off. Prior to Thursday, F stock gained about 9% off its “Trump and dump” low of $11.07 on Nov. 9.
It’s likely investors have embraced a more realistic wait-and-see approach with Ford stock. That’s probably smart, considering there’s uncertainty over what any wheeling and dealing by the incoming administration might actually look like when all is said and done.
As well, there are always other catalysts just around the corner that force investors to shift gears and race in the other direction. Thursday was one of those days for F stock courtesy of stronger-than-forecast SUV, truck and Lincoln brand sales data. Rival General Motors Company (NYSE:GM) provided some encouraging data, too.
The even better news for Ford investors? F stock’s recovery has now turned an important corner on the monthly price chart.
F Stock Daily Chart
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But in looking at F stock’s monthly chart, the action is considerably more bullish.
With Thursday’s nearly 4% price gain, shares have bullishly signaled out of a doji candle. Supporting our optimism, November’s candlestick is part of an 11-month double-bottom which found loose support at the 38% retracement level off the 2009 financial crisis low.
The price action in F stock also has support from an oversold stochastics crossover.
How to Trade F Stock
Reviewing Ford’s options board, the March $13 call/$11 put reverse fence strategy is a lower-risk way to position in Ford as a bullish investor.
The spread requires the trader to buy the $13 call and sell the $11 put simultaneously. With F stock at $12.47, the combo is priced for a credit of 12 cents and offers bullish investors some nice flexibility.
First, this Ford trader has an opportunity to capture the full credit of 12 cents between $11 and $13 at expiration. Thus, if F stock stays rangebound rather than motoring aggressively higher, the trader at least receives a little bit of income. In fact, the payment would be similar to Ford’s 15-cent quarterly dividend, as a reward for the their time in the position.
Second and even sweeter, if Ford stock starts to follow through on Thursday’s bullish print sooner, rather than later, the trader can anticipate larger profits before the purchased $13 strike call is cleared and begins trading more and more like shares.
The larger interim profit in this Ford strategy is due to time premium on top of any intrinsic value in the long call and the short put’s premium moving ever closer toward zero.
This spread effectively allows the trader, through assignment, to acquire F stock at $10.88. That’s simply subtracting the credit from the sold $11 put. That’s nearly 13% lower. Not a bad way to rev up the ol’ portfolio.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
