Last year I had success trading ranges in Ford Motor Company (NYSE:F), as is evident by this 50% yielding Iron Condor. This year, Ford stock showed great promise early, and I think it’s headed higher from here.
Since the spike of early January, F stock chopped and consolidated around a base that has served as support since 2013. Sure we had two pokes below it but those were on market-wide debacles and were quickly rejected.
With a good base underneath it, F shares are headed higher. The stock is cheap enough that I could buy it, but I still favor the juice from options trades. If I guess the direction correctly, at-the-money option trades offer a much bigger yield on money risked.
In addition, I have hundreds of ways to accomplish a long trade in Ford shares using options. Buying the stock ties up more money and leaves me hoping for a big move in Ford shares.
F Stock Trade Idea
Click to Enlarge The Bet: Buy F Mar 24 $12.50 call. This is a bullish trade for which I pay 40 cents per contract to open. This is my maximum risk. The faster and sooner Ford stock rallies past my strike, the fatter the profit.
I could spread this trade by buying the $13.50 call and lower my entry cost. But this also limits my potential profits to the width of the spread less my cost of entry.
There is another way with which I can lower my out-of-pocket risk. In this case, I am comfortable selling downside risk into Ford to finance today’s entry.
The Bank (Optional): Sell Ford Mar 24 $12 puts. This is a bullish trade for which I collect 21 cents per contract to pen. The 70% theoretical chance of success sounds aggressive, but in this case, I am willing and able to buy F stock at the strike sold.
Tesla Inc (NASDAQ:TSLA) is due to report next. But I think that the read-through to F stock or General Motors Company (NYSE:GM) is minimal. TSLA is perceived as more of a technology trade than an auto trade.
I am not required to hold my trades open through expiration, and can close any options trade for partial gains or losses at any time.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
