Ford Stock Break Out Makes A Juicy Opportunity for Options Traders

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Ford (NYSE:F) shares were on the move this morning, leaping 3.5% in early trading Dec. 16 to restore last week’s failed breakout. F stock has been red-hot during the fourth quarter and remains incredibly popular.

A Ford (F) sign hangs on a glass wall in Kiev, Ukraine.
Source: Vitaliy Karimov / Shutterstock.com

Retail traders love F stock for its cheap price tag, above-average volatility, and exposure to the EV movement. But most of all, Ford’s performance speaks the loudest.

You can obsess over a stock’s story and fundamentals all you want, but unless you’re getting paid, it’s hard to stick around. And Ford has been raining Benjamins on traders for nearly 18 months now.

At its pandemic low last March, shares sank below $4. Now they’ve blasted past $20. A 500% gain is enough to get even the sleepiest traders to perk up.

Earnings numbers improved along the way, and the company just paid out its first dividend since halting the quarterly payout in early 2020. Reinstituting that income stream speaks to Ford’s confidence in its balance sheet and optimism for the future.

F Stock On the Weekly Chart

Ford (F) weekly stock chart with powerful uptrend.
Source: The thinkorswim® platform from TD Ameritrade

We’ll begin with the weekly time frame to highlight the big picture. I’ve already revealed the eye-popping 500% rise, but let me add that the surge has created a clean and consistent long-term uptrend.

Every dip was bought, every breakout chased. This is another reason for the stock’s popularity among traders: it plays well with technical analysis. Support & resistance zones are respected, as are moving averages.

If it wasn’t obvious, momentum blasted higher on the last advance, signaling increasing trend strength. Buying continuation patterns after such a run is extremely attractive. It’s impressive that even though prices soared over 50% on the last upswing (Sep – Nov), we barely pulled back at all.

Instead, prices paused for a month to create a high base pattern. This speaks to continued buying pressure beneath the surface.

Ford On the Daily Chart

For more detail of the recent consolidation, let’s consider the daily view.

Ford (F) stock daily chart with high base breakout.
Source: The thinkorswim® platform from TD Ameritrade

Note how firm $19.10 has held over the past month. Prices must stay above that level to maintain their bullish posture. At the same time, resistance at $20.60 has kept a lid on rallies. But we’ve now pierced it twice.

Last week’s failed breakout was highly disappointing, particularly given the high volume that accompanied the jump. That said, we didn’t spend long back in the range. With today’s jump, we’re now back above resistance.

I love the speed at which buyers return, particularly after getting so thoroughly denied. It reinforces an overall bullish bias.

Two Trade Ideas

The options market provides many ways to play here. Remember, there’s always a tradeoff between the probability of profit and the max gain. You can build a high odds trade with a small payout or enter a lower odds trade with a big payout. Ultimately, it comes down to just how aggressively you think Ford will move over the coming month.

A High Odds Trade: Sell the Jan. $19 put for 45 cents.

Consider this a bet that F stock sits above $19 at expiration. If it does, you’ll pocket the 45 cents. The market is pricing in a 77% chance of success. By selling the put, you obligate yourself to buy 100 shares at $19.

A High Reward Trade: Buy the Jan. $21/$24 bull call spread for 85 cents.

You’re risking 85 cents to make $2.15 if F stock climbs to $24 by expiration. The odds of capturing max gain are around 21%.

On the date of publication, Tyler Craig was LONG F stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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