Last year I had success trading ranges in Ford Motor Company (NYSE:F), as is evident by this 50% yielding Iron Condor. This year, Ford stock showed great promise early, and I think it’s headed higher from here.
Since the spike of early January, F stock chopped and consolidated around a base that has served as support since 2013. Sure we had two pokes below it but those were on market-wide debacles and were quickly rejected.
With a good base underneath it, F shares are headed higher. The stock is cheap enough that I could buy it, but I still favor the juice from options trades. If I guess the direction correctly, at-the-money option trades offer a much bigger yield on money risked.
In addition, I have hundreds of ways to accomplish a long trade in Ford shares using options. Buying the stock ties up more money and leaves me hoping for a big move in Ford shares.
F Stock Trade Idea
Click to Enlarge The Bet: Buy F Mar 24 $12.50 call. This is a bullish trade for which I pay 40 cents per contract to open. This is my maximum risk. The faster and sooner Ford stock rallies past my strike, the fatter the profit.
I could spread this trade by buying the $13.50 call and lower my entry cost. But this also limits my potential profits to the width of the spread less my cost of entry.
There is another way with which I can lower my out-of-pocket risk. In this case, I am comfortable selling downside risk into Ford to finance today’s entry.
The Bank (Optional): Sell Ford Mar 24 $12 puts. This is a bullish trade for which I collect 21 cents per contract to pen. The 70% theoretical chance of success sounds aggressive, but in this case, I am willing and able to buy F stock at the strike sold.
Tesla Inc (NASDAQ:TSLA) is due to report next. But I think that the read-through to F stock or General Motors Company (NYSE:GM) is minimal. TSLA is perceived as more of a technology trade than an auto trade.
I am not required to hold my trades open through expiration, and can close any options trade for partial gains or losses at any time.
Nicolas Chahine is the managing director of . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at and stocktwits at .
