Frustrated with Ford Motor Company (NYSE:F) lately? You’re not alone. Ford’s Board of Directors detained CEO Mark Fields this week for a little talk about the company’s direction ahead of Thursday’s annual shareholder meeting. It seems F stock is down more than 35% since Fields took the driver’s seat, and the board is getting impatient for results.
Adding insult to injury, Ford stock has shed nearly 8% so far this year, allowing upstart electric vehicle maker Tesla Inc (NASDAQ:TSLA) to surpass the original American automaker in terms of market capitalization.
Click to Enlarge Even long-time rival General Motors Company (NYSE:GM) — who was also upstaged by Tesla in terms of market valuation — has made a better go of the shifting American auto market than Ford, banking on its successful GMC Yukon line of large sport-utility vehicles, which have made a comeback due to languishing oil and gasoline prices.
Ford itself is looking to revitalize its own large SUV offerings by launching redesigned versions of its Expedition and Lincoln Navigator later this year. But in this too, Ford continues to chase is competitors rather than lead.
In Fields defense, he has F stock pointed in the right direction by focusing on automated vehicles, AI driven taxies and electric vehicles. The problem is that Ford still has to make money in the current market while preparing for the next. It’s a task that is taking much longer and proving to be more costly than investors, and, apparently, Ford’s Board of Directors had anticipated.
The general consensus is that Ford stock will turn around … eventually. But the question for investors is how much frustration are you willing to endure before that happens? Ford stock investors can take some solace in the fact that the company offers a solid dividend of 5.4% — more than double the average yield of 2% from S&P 500 index companies.
With a rocky fundamental outlook, it’s no surprise that Ford stock hasn’t won many backers on the sentiment front. For instance, Thomson/First Call reports that only eight of the 24 analysts following the stock rate it a buy or better. The 12-month price target is also restrained, offering up a premium of about 15% at $12.90.
On the options front, call traders are understandably thin. At last check, the back-month June put/call open interest ratio rested at 0.86, up sharply from a similar back-month reading in the 0.50-0.60 range at the beginning of the year. Peak call OI totals more than 104,000 contracts at the June $13 strike, but many of these options have been open since mid-February, when F stock was trading in the $12.60 range.
Overall, June implieds for Ford stock are pricing in a potential move of about 5% for F through the end of next month. This places the upper bound near $11.72 and the lower bound at about $10.60 based on Wednesday’s open of $11.16
2 Trades for F Stock
Put Sell: With little in the way of significant short-term drivers, a speculative put or call F options position won’t offer the kind of returns that many traders are looking for. For prospective Ford stock investors, however, there are more than a few strategies that could help you acquire the shares at a relatively bargain price and get you in the door for that 5.4% dividend payout.
The easiest way to acquire Ford stock using options is to sell an out-of-the-money put option. Doing so allows you to essentially name the price you want to pay for Ford shares, and get paid to do so. Let’s assume your price target for owning Ford shares is $11. In this case, you would sell to open a June $11 put, currently bid at 20 cents, or $20 per contract.
That’s it. You sell the June $11 put, collect the premium, and wait. If Ford doesn’t hit your target, you roll the put out to the July series, rinse, repeat and get paid.
Call Sell: But what if you already own Ford stock? Well, there’s an options strategy for relieving a bit of the pain on that front as well. For instance, you can sell out-of-the-money calls and collect the premium while waiting for the shares to finally break out of their funk. The risk here is that if Ford breaks above your sold strike, the shares could be called away from you.
For example, if you sold the June $12 call, you could collect the current premium of 5 cents, or $5 per contract. As long as Ford stock closes below $12 when June options expire, you keep this premium, and your underlying shares. And you can do this with every options expiration, banking a little cash to make up for Ford stock’s stagnation, as long as you’re willing to take the risk of having your stock called away.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
