It’s no secret, Ford Motor Company (NYSE:F) has been choking shareholders for a while now. But for contrarian investors, a toxic situation off the chart combined with a less lethal technical situation in Ford stock suggests the time is right for a bullish modified fence strategy using the F options market.
Possible carbon monoxide issues are no laughing matter and it’s one Ford has been dealing with in recent weeks. I’m certainly not telling readers anything new. Unsurprisingly, the company’s problem with police SUVs in Austin, Texas, has been front page news over this period, much to chagrin of Ford.
And the situation could get worse. There are lingering concerns of whether thousands of other Ford Explorers also on the road are at risk of exhaust fumes seeping into those vehicles and putting passengers in harm’s way.
The good news is that despite the seriousness for consumers, as well as its impact on Ford stock’s bottom line and potential brand credibility, investors aren’t buying it, but nor are they really selling into it either.
That’s not to say it’s blue skies ahead for F stock. Longer-term though, this problem is most likely a bump in the road for Ford.
It’s our guess investors are not only aware of this, but also appreciative of big-picture growth opportunities like the autonomous auto revolution, as well as those on the Ford stock chart.
Ford Stock Monthly Chart
The monthly chart of Ford stock emphasizes an out-of-favor name over the past couple years that has fully removed itself from the champagne and caviar celebrations of the broader market. The good news is that, without being overly optimistic, cycles like Ford’s do eventually shift gears and reverse. That, of course, would mean higher prices in F shares and a bullish trend will eventually emerge.
Backing this view, shares of F have essentially been parked in neutral since the August 2015 flash crash low which bottomed just above the 50% support level. In conjunction with an oversold crossover signal from Ford stock’s stochastics indicator, it’s this strategist’s contention Ford’s own little bear market of the past three years is gearing up to motor higher from its current idling behavior.
Ford Stock Modified Fence Strategy
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What does this combination give Ford investors? On the upside, this modified spread offers plenty of “vroom, vroom” as the trader owns a long call for free.
Shares of F do need to rally by just over 10% before the contract would be in the money. However, as a long delta strategy, if a bullish move occurs sooner rather than later in the life-cycle of the spread, paper profits can accrue before the call builds actual intrinsic value.
Secondly, this spread offers definitive protection. If the sold below-market put spread was to finish in-the-money, the trader’s max loss is $1 below $9 in Ford stock regardless of how low shares trade.
Bottom line and getting past the one potentially forfeited dividend of 15 cents in December, this modified fence offers nice overall features. At the same time, if Ford stock turns into a back-up-the-truck situation on the price chart, this trader could be in a much stronger financial and mental position to do just that and accumulate shares.
Investment accounts under Christopher Tyler’s management currently own Ford stock and / or F derivatives. 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 and StockTwits.
