Bullish on Ford (F)? Buying the Stock is Only One Option
CNBC’s Jim Cramer said Ford Motor (NYSE: F) is “going to have a miraculous quarter” during a recent broadcast of the network’s Mad Money. Cramer is so bullish on Ford, he stated that the United Auto Workers’ decision to sell its Ford common-stock warrants will not have negative repercussions on the shares. In fact, he recommends buying either the warrants or the F shares.
Ford has gained 287% in the past 12 months and is fresh from a new 52-week high. Currently, the stock is trading at $12.58.
Thinking Beyond Buy, Hold, Sell…
Focusing on stock plays exclusively, Cramer is limited to the traditional buy, hold, and sell rating system. By trading Ford (and other stocks) with option strategies in lieu of buying or shorting the stock itself, investors can commit less capital (and occasionally limit risk).
Like Cramer’s optimism? Consider bullish strategies. Feel Ford is overbought at its current level? A bearish options strategy might work, and might carry less risk than a short stock play.
Below are just two potential options strategies – these are not buy-sell-hold recommendations, just hypothetical examples of two trades – one bullish and one bearish.
*Option prices given as of Thursday morning
Bullish Option Strategy: Bull Call Spread
Investors who think Ford shares will remain strong in the short-to-intermediate term might consider buying a bull call spread. The June 13/14 call spread is currently priced at 32 cents, which is all the spread buyer stands to lose if Ford plunges below the $13 level. The maximum potential profit is 68 cents per spread, and is achieved if Ford is trading above $14 when these options expire in about 72 calendar days. Breakeven for this trade is $13.32. Anywhere above this level, the spread trade will be profitable.
Bearish Option Strategy: Long Put
Traders on the bearish side of the fence could consider buying longer-dated long puts. The January 2011 12.50 put is currently priced at $1.70. Put buyers stand to lose 100% of the premium paid for the option, but can enjoy significant profit if the stock drops below breakeven.
For this particular put, breakeven at expiration is $10.80. The put will be in the money when the option expires in January if Ford is trading below this level. There are about nine months until these options expire, however, so a move lower in the shares (or in implied volatility) could provide an opportune exit point ahead of expiration.
Your Take
Because option strategies are multi-faceted, they don’t just rely on changes in the stock price, changes in volatility and the timing element are also important considerations. For that reason, strategies can be tweaked any number of ways (changing strike price, changing expiration month, legging into a spread) for a variety of circumstances.
Are you a believer in Ford, like Jim Cramer is, or do you have your doubts? Have strong feelings about Ford that might inspire you to make a trade one way or another? Let us know your thoughts in the comments section below.
Learn more about trading options at OptionsHouse by checking out our rates for options trades, or if you are new to options and still trying to get your feet wet, try practicing trades in a virtual trading account.
Photo Credit: pixelens photography
Share and Enjoy:
Related posts:
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
