When you’re as large as Ford Motor Company (NYSE:F), you change direction with the speed and grace of a full size SUV — much to the chagrin of F stock holders. It takes considerable effort to adjust to today’s shifting market trends, especially when direction of the auto market toward self-driving electric cars is practically anathema to your business model.
What’s more, May auto sales showed that Ford still has plenty of gas in the tank, with it’s 2.2% gain in U.S. sales topping rival GM — as well as leading Japanese competitors Honda Motor Co Ltd (ADR) (NYSE:HMC) and Toyota Motor Corp (ADR) (NYSE:TM).
Additionally, the promotion of Jim Hackett to CEO indicates that Ford is now headed in the right direction, with Hackett’s focus on mobility technology, AI and alternative fuel vehicles. As a result, Richard Saintvilus believes that F stock could hit $13 by the end of the year.
I believe Ford will hit that target a bit faster — especially with oil prices continuing to languish.
Ford Sentiment and Options
Sentiment has finally caught up to F stock’s poor price action, and that’s a good thing. In fact, bearish sentiment may have run a bit too far. For instance, Thomson/First Call reports that only seven of the 24 analysts following the stock rate it a “buy” or better. The 12-month price target could also use some improvement, resting at a premium of about 15.9% at $12.80.
Click to Enlarge More signs of excessive bearishness can be found among short sellers.
During the most recent reporting period, F stock short interest rose by an impressive 21% to 140 million shares. This wealth of short interest now accounts for nearly 4% of Ford’s total float, indicating that it has become almost fashionable to short. A rebound in the stock could send many of the weaker hands scrambling for the exits, thus increasing upward pressure.
Turning to options, it’s clear that Ford’s short sellers aren’t hedging their bets with calls. Currently, the July put/call open interest ratio weighs in at 1.21, with puts easily outnumbering calls among front-month options.
Overall, July implieds for Ford stock are pricing in a potential move of about 4.5% through the end of next month. This places the upper bound near $11.50 and the lower bound at about $10.50.
Let’s look at the trades.
2 Trades for F Stock
Put Sell: While I’m bullish on Ford’s prospects, I’m also a realist in that the shares don’t appear to have a major driver on the horizon. With implieds coming in a bit higher than usual for F, selling premium may be the safest bet for a profit at this point.
Those looking to take advantage of technical support for F stock might want to consider a Jul $10.50 put sell position.
At last check, this put was bid at 9 cents, or $9 per contract. On the upside, traders will keep the initial premium received as long as F stock closes above $10.50 when July options expire. The downside is that should Ford trade below $10.50 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $10.50 per share.
Call Spread: Those looking for a riskier bull trade, but with a much higher payout, might be interested in a Jul $11/$12 bull call spread.
At last check, this spread was offered at 24 cents, or $24 per pair of contracts. Breakeven lies at $11.24, while a maximum profit of 76 cents, or $76 per pair of contracts, is possible if Ford stock closes at or above $12 when July options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.