Filed under: Bad news, Industry, Ford Motor (F), General Motors (GM), Options, Technical Analysis, Garmin Ltd (GRMN)
Ford (NYSE: F) shares are falling today after Goldman Sachs cut his price target on the stock to $5 from $8. The broker maintained a “neutral” rating on Ford, but moved General Motors (NYSE: GM) to a sell. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on Ford.
After hitting a one-year high of $9.70 last June, the stock hit a one-year low of $4.95 in March. This morning, F opened at $5.07. So far today the stock has hit a low of $4.94 and a high of $5.16. As of 12:30, F is trading at $5.03, down $0.22 (-4.2%). The chart for F looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would think about a September bear-call credit spread above the $6 range. A bear-call credit spread is an options position that combines the buy and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we’ll make a 9.9% return in three months as long as F is below $6 at September expiration. Ford would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.
F was above $6 as recently as early June, but has dropped sharply and shown resistance around $5.20 recently. This trade could be risky if the company’s earnings (due out in late July) are a positive surprise, but even if that happens, this position could be protected by fewer people buying pricey cars and trucks that don’t get great mileage.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that might include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in F.
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