Ford Motor Company (NYSE:F) is set to roll another quarterly earnings report off the assembly line this Thursday. The American automotive giant gained considerable attention during the U.S. presidential election, but that buzz has failed to carry over onto Wall Street.
In fact, judging from the sentiment backdrop, traders aren’t expecting much, if anything, from Ford stock this time around.
Historically, Ford has bested the Street’s consensus earnings estimate in five of the past eight quarters. However, that may not mean much on Thursday, with Ford earnings expected to decline 44% to 32 cents per share from 58 cents per share a year ago. Revenue is also expected to arrive lower, down 7.2% year-over-year at $35.1 billion.
And then there’s Ford’s whisper number. According to EarningsWhispers.com, some analysts expect earnings to fall to 34 cents per share. As you can see, expectations are quite low for F stock either way.
This sentiment is also reflected in analysts data from Thomson/First Call. Currently, 17 of the 24 analysts following Ford stock rate the shares a “hold” or worse. Additionally, the 12-month price target of $12.83 represents a meager premium of only 4.2% to Monday’s close.
F stock options traders, however, appear considerably more optimistic. Currently, the Jan./Feb. put/call open interest ratio rests at 0.68, with calls easily outnumbering puts among options set to expire in the next month. Furthermore, this ratio plunges to 0.29 for 27 Jan. options — i.e., the most affected by this week’s earnings report.
The question is, are these options traders betting on a rally for F, or are they Ford stockholders looking to hedge a poor earnings performance by selling premium.
Click to Enlarge It would seem that question is answered by looking at 27 Jan implieds. Currently, options traders are pricing in a measly post-earnings move of only about 1.7%. Not only are expectations for post-earnings movement quite low, so too are F stock option premiums, decreasing the likelihood that shareholders are selling calls to offset poor stock performance.
Judging from 27 Jan. implieds, the expected upper move rests at $12.46, while the lower bound lies at $12.04. Short-term support appears strong near $12, while resistance should lie closer to $13, indicating an upside potential that options markets don’t seem to be pricing in.
2 Trades for F Stock
Call Spread: I don’t see any real issues in store for Ford’s quarterly report, as most of the bad news is already factored into the quarter. Guidance, however, is another matter, given the unknown factor of the Donald Trump administration’s protectionist plans. However, I would expect Ford to be upbeat, thus leading to an F stock rally amid low expectations.
For those looking to follow the prevailing winds in the Ford options pits, a Feb $12.50/$13 bull call spread has plenty of potential. At last check, this spread was offered at 19 cents, or $19 per pair of contracts. Breakeven lies at $12.69, while a maximum profit of 316 cents, or $31 per pair of contracts, is possible if Ford stock closes at or above $13 when Feb. options expire.
Put Sell: If a call spread is too bullish for you, then a more neutral 27 Jan $12 put sell may be what you are looking for. At last check, this option was bid at 5 cents, or $5 per contract.
The upside to this put sell strategy is that you keep the premium as long as F stock closes above $12 when 27 Jan options expire at the end of this week. The downside is that should F trade below $12 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $12 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.