Ford Motor Company (NYSE:F) has been stuck in the proverbial mud, but could 2017 finally see F stock shift gears and drive shareholder value? Let’s check what’s going on with Ford both off and on the price chart, as well as a F options strategy to navigate any potential bumps that might still be in the road ahead.
Have you driven a Ford lately? If you have, it’s unlikely to have provided much torque to the portfolio. The fact is, outside the darkest days of the financial crisis, F stock has gone nowhere.
It’s true, there has been a steady and decent dividend for income investors. The payout has averaged more than 3% and currently yields a hefty, above-market 4.73%. But when compared to the outsized gains for the broader averages the last several years, most investors would have done well to have steered clear of F stock.
But can Ford finally turn the corner for investors in 2017? Personally, I’m a huge fan of the Ford Transit T-250 cargo van and can’t help but appreciate the Super Duty and F-150 Raptor trucks as vehicles worthy of reaffirming the legendary “Built Ford Tough” tradition.
But is that enough to invest in F stock? Maybe it is for my family, and legendary investor Peter Lynch might be agreeable with that decision … but for other investors, yes, there is more to Ford stock.
Optimistically, the road ahead looks strong for F stock. Most exciting, Ford is the first auto company that’s set a firm target date of 2021 for rolling out fully autonomous vehicles into the market.
But even if there are bumps in the road ahead, Ford is looking good and F stock could still find itself motoring higher.
Ford has been very proactive in recent years to become a more nimble auto company. And as a cyclical business firing on all cylinders with record sales in 2016, Ford management is ready for the inevitable. In fact, domestic sales could fall 30% and F stock would still turn a profit due to its increased manufacturing efficiencies.
Bottom-line and regardless of the operating environment, Ford is building itself tougher than ever. And who knows, maybe it will take a sales slump to turn F stock higher, as investors recognize the worst is probably a good deal better than today’s gloomy forecast? Maybe.
F Stock Monthly Chart
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But lengthy consolidation work since mid-2015 appears to have found a firming technical floor around the 38% retracement level dating to the low of the financial crisis.
F Stock Modified Reverse Fence Strategy
Considering what’s been addressed, a modified reverse fence strategy is one lower risk way to position in Ford as a bullish investor. Specifically and after reviewing F stock’s options board, buying the June $14 call and selling the June $11/$10 put spread as a package for even money is attractive.
At expiration, if Ford shares are between $11 and $14 the trader’s position is a wash as the long call and below-market credit spread both expire worthless. If shares begin to rally higher, the packaged spread should begin to slowly increase in value as the purchased call gets closer to being in-the-money. Right now, of course, the 12% gain necessary in F stock for that to happen, is probably accompanied by laughter. Never say never.
In the event screams of panic are heard instead and F stock unexpectedly slumps below $11, this bullish trader is protected. Downside risk amounts to $1 during the life of the spread, if and only if, Ford is below $10 at expiration.
While this even-money F stock strategy fails to make you an income investor in more than one way — as one dividend of 15 cents is also forfeited — avoiding substantially larger downside risk and still positioned for a rally, makes a good deal of sense.
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.
