Have you driven Ford Motor Company (NYSE:F) lately? Chances are you haven’t — at least, that’s what the latest market data says. Still, a mouth-watering opportunity is building in Ford stock, so if you’re not in, you should reconsider.
Ford stock has been the Rodney Dangerfield of the auto world — it has gotten no respect compared to peers General Motors Company (NYSE:GM), Toyota Motor Corp (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC) in 2016.
F stock is off 14% this year (excluding dividends). That’s in stark contrast to a gain of about 6% in the S&P 500. And while the other big auto manufacturers are also underwater on the year, they are doing substantially better than Ford’s skid lower.
The latest sales data doesn’t appear to help Ford stock’s case, either. Monday’s monthly tally showed Ford’s overall sales fell by 8% and the weakest among the group.
And if you’re banking on Ford’s place within the up-and-coming “emerging mobility” market, think again. InvestorPlace’s Craig Adeyanju shed some light on the company’s prospects the other day, and apparently Ford’s inroads are nothing to get excited about.
Lastly, if you look at the chart, the damage to Ford stock looks even worse.
But that — in addition to some bullish trends that are receiving little respect — is why F shares might be worth a ride.
Ford Stock Charts
In fact, various bearish patterns only appear to confirm that a longstanding downtrend is nowhere near being done.
The good news is that stock rotations — which take the out-of-favor to being dearly held — often happens quickly and when it’s the least obvious. Also, if it looks too good to be true (and for the bears, it does), it probably is. That’s just the nature of the market.
That said, should Ford shares actually take bears for a ride, wouldn’t it be nice if you could back up the truck with less than 1% risk at a discount of more than 16% to today’s prices?
How to Trade Ford Stock Right Now
The March $13 call/$10 put reverse fence strategy has caught my eye as a lower-risk way to position yourself bullishly in Ford stock.
This spread requires you to buy the $13 call and sell the $10 put simultaneously. With F stock at $12.10, the combo trades for a debit of 10 cents, or less than 1% of the underlying price in Ford.
If during the life of this spread F stock falls from $12.10 to $10 or lower, you have paid 10 cents for the opportunity to buy Ford at $10 through assignment of the short March $10 put.
On paper, this strategy might need to forgo a couple dividends of 15 cents, or roughly 2.5%. But for this sacrifice, you’re positioned to buy for an effective price of $10.10 at expiration, or roughly 16.5% below today’s prices.
Alternative, if Ford stock rallies from here, you’re effectively long at $13.10 thanks to the long call exposure. And if shares rally sooner, the reverse fence can accrue profits before F stock gets above $13.10. That’s because of the greater directional exposure between the two out-of-the-money strikes when there’s still time on the calendar.
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.