Call Options Or Put Options On Ford (F)?

| August 1, 2012 | 0 Comments

F OptionsFord Motor (F) doesn’t need any introduction.  The American automaker has been building cars and trucks in the US for more than 100 years.

Unfortunately, longevity is no guarantee of future success.

F currently trades for $9.05 per share.  It’s down more than 30% from the 52-week high of $12.98.  The stock’s hovering near multi-year lows. 

Is this an opportunity to buy call options on Ford (F) as it bounces back?  Or should you buy put options on F as weak sales drag the stock lower?

The bulls make a convincing argument…

The latest US auto sales numbers came out today.  And the results weren’t good. Ford’s July sales fell 4%.  The slowdown was tied to weak fleet sales to rental car companies and other bulk buyers.

The weak sales are adding fuel to the fire of the poor macroeconomic outlook that’s been putting pressure on the stock for months.

The good news is Ford’s expecting sales to rebound in the second half of the year.  And despite the weakness in sales volume, sales prices have held up well.

What’s more, F’s chart looks bullish from a technical standpoint. 

As I pointed out, F’s trading near multiyear lows.  But this low is also a strong level of support.  When F fell to this level last October, it quickly shot up more than 35% in just a few weeks.  As long as F holds above this technical support, we’ll likely see it move higher in the weeks ahead. 

At this point, the bad news has been fully priced into the stock.  And this could be a great opportunity to pick up shares of the beaten down automaker at a nice discount.  

But the bears have a compelling case as well… 

Look, Ford’s cheap for a reason.  Have you driven one of their cars lately?

These cars are light years behind the competition.  European and Asian carmakers’ vehicles are just better.

Right now the auto industry is on track for its best year since 2007.  And many car makers are posting huge sales increases.  But Ford is losing ground at the same time their competition is gaining ground.

In fact, Ford’s market share dipped to 15.4% in the first half of 2012 from 16.5% at this time last year.  That sounds like a problem with Ford’s product to me. 

Consumers are simply choosing to buy a better quality product from the competition. 

The bottom line is slowing sales and falling market share is a surefire way to get your stock price whacked.  And so far, F doesn’t seem to have a plan to reverse these troubling trends.

If you think the bulls are right, take a look at buying the F December 2012 $9 Call for around $0.67. 

If you think the bears are right, take a look at buying the F December 2012 $9 Put for around $0.67.

Good Investing,

Corey Williams

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Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.