It’s no secret, Ford Motor Company (NYSE:F) has not been a bull (or a mustang or a bronco for that matter) for shareholders in a long, long while. But with more than its share of bad news priced in, Ford stock is more of a buy than not — well, kinda sorta — using F options.
Ford stock, it seems, can’t seem to get out of its own way. Supportive items such as the company’s recent and generally decent earnings report, all things considered, failed to turn the ignition key for bulls. After a false start, Ford stock backed up by about 2.5% in the immediate earnings aftermath.
And bigger picture?
Well, that too has also seemingly been ignored and much to the chagrin of F stock shareholders.
Longer-term supports such as firm strides in making sure Ford is on solid footing through the thick — such as the autonomous auto revolution — and thin, like a bulletproof financial position to weather the next auto cycle decline, have been given about as much respect as Rodney Dangerfield.
The good news? Maybe it’s in the Ford stock chart at this point in time? If it’s not though, there may still be a reason to buckle up for a test drive. Let me explain.
Ford Stock Weekly Chart
Over the past couple weeks, since I last wrote about Ford stock, not much has changed technically. And overall that’s a good thing for investors, though unlikely of benefit for a ‘cheapy’ OTM pre-earnings call position discussed at the time.
Bottom line and as far as the price chart is concerned, F shares are still holding a ‘good enough for government work’ triple bottom formed over the past 15 months. In fact, with this week’s minor breach of the February 2016 low and stochastics still curling up from an oversold condition, the pattern could be viewed as even a bit more durable if $10.90 can hold.
And if $10.90 doesn’t hold and instead folds? The August 2015 flash crash low of $10.44 is just around the corner. Personally, I’m not sure how that test and potential double-bottom would play out for F shareholders. However, that’s not to say buckling up in Ford stock with a limited-risk alternative long position is out of the question.
F Stock Modified Fence Strategy
Given our view of seeing some sort of bottom playing out in Ford stock, but not entirely sure whether that happens near $11 or closer to $10 (optimistically of course), I like approaching F stock with a modified reverse fence.
Reviewing Ford’s options and with shares at $11, one such packaged spread is the combination of buying the Sept $13 call and selling the Sept $10/$9 put spread for a net credit of 10 cents or better.
What does this combination entitle a Ford stock bull too? Well, if you’re a dividend investor, this strategy isn’t for you. However, on an expiration basis if shares are wedged between $10 and $13, the credit is kept.
If shares of F begin to rise sooner rather than later towards the $13 call, the spread can begin to accrue profits without the requirement of the call having intrinsic value due to the building of modest time or extrinsic premium.
Better yet, if Ford stock were to show off the stride of a mustang and muscle its way above $13, this combination is essentially the equivalent of riding Ford stock long and having been paid to take a test drive.
Further, converting the call into actual F shares to collect future dividends could also be considered.
Lastly, if Ford stock continues to fall, the combination of the credit received and $10/$9 put spread add up to an expiration break-even of $9.90 or 10% below F’s current price. If the trader wishes to accept assignment and become a Ford stock owner, that’s the most they’ll pay. What’s more, the entry price could be a good deal cheaper if shares plummeted below the vertical — and in our estimation, that sounds like a nice alternative to owning F shares right now.
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.
