Off and on the price chart, conditions are clearing up for Ford Motor Company (NYSE:F). But before investors run out and buy F stock, a bullish modified fence strategy using Ford options looks like a better way to rev up profits with less risk. Let me explain.
F stock has been a wreck the last couple years. While the broader averages have surged to all-time-highs over this period shares have been parked near five-year lows.
Sans a healthy-size 5.29% dividend to ease some of the pain of being left behind, it’s been a tough ride for longer-term Ford shareholders.
Much of the difficulty in F stock has been tied to persistent and raised concerns of peak auto sales. Just announced monthly U.S. auto sales for August were off 1.9% and likely did little to quell those fears.
A recent exhaust system problem with the company’s hugely-popular Ford Explorer has also weighed on share price and helped counter longer-term positives like Ford’s growth potential as it gears up for a huge secular trend in the autonomous auto market.
Now however, another tragedy off of the price chart could help jump-start F stock. In a perverse twist of fate, the destruction left behind by the super storm has also resulted in roughly 1 million damaged vehicles that will need to be replaced and a boon for Ford and other auto manufacturers.
F Stock Monthly Chart
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Our contrarian view is backed by a newly confirmed monthly hammer and an oversold stochastics crossover signal.
Coupled with technical support from the 2015 flash crash low and 50% retracement level dating back to lows of the financial crisis, there’s solid evidence F stock has finally turned the corner.
F Stock Bullish Modified Fence Strategy
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If the advice sounds familiar it is. Back in early August and with slightly less support on the F stock chart, I proffered buying the December $12 call while selling the Dec $10/$9 put spread for even money with Ford shares at $10.89.
Now trading for a small debit of 13 cents, I still like the risk-reward of this combination for initiating a bullish position with open-ended upside profit capture and limited risk on the downside.
As discussed last time, F stock still has its work cut out for it as far as this spread is concerned on an expiration basis. However, with the additional confirmation on the price chart, the 1% premium paid with shares up about 4.2% still appears attractive. And it trumps potentially forfeiting one quarterly dividend payment of 15 cents in December.
Investment accounts under Christopher Tyler’s management currently own positions in Ford (F) stock and its 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 and feel free to click here to learn more about how to design better positions using options!
