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Monday, April 22, 2024

Top Trade Alert – Oct 30, 2023 – Ford (F)

I can't believe we haven't picked Ford in ages!  

They are certainly cheap enough now: 

Short-term, the new labor deal increases costs and reduces the company’s flexibility to adjust production but now they have labor stability going forward and the higher wages will help the auto companies attract workers from other industries – something that had been going the other way for a couple of years.

They needed the strike to insure all the major auto-makers had a level playing field and so they could raise worker’s compensation without being sued by the shareholders for giving away profits. Now they have a good excuse for raising prices across the board without being accused of collusion by the Government but the benefits will take time and the costs are immediate.

A big deal is being made by Ford’s putting off a $12Bn EV investment but of course they had to do that with $8Bn of contract raises to price in over 4 years but EV as put off, not cancelled.

F is still underpriced but don’t expect a big bounce. As a new trade, I’d go for:

  • Sell 20 F 2026 $12 puts for $3.50 ($7,000)
  • Buy 75 F 2026 $10 calls for $1.75 ($13,125)
  • Sell 75 F 2026 $15 calls for 0.65 ($4,875)

That’s net $1,250 on the $37,500 spread so $36,250 upside potential at $15 but even $13 pays $7,500 – which would be just fine.

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