A number of investors have written me today wondering what I think about Put Selling against Ford Stock. Ford Stock symbol is F. Ford stock has certainly had a nice year. On January 2 2013 the first trading day of the year Ford Stock closed at $13.20. Today (Sep 4 2013) it closed at $16.91 for a gain of 30.7%. An impressive gain in just 8 months. The problem I have found when talking to my investor friends is none of them have bought this stock below $13 (or lower) and held on until now. Instead most have bought and sold it at various times and all in all not a lot of them made much money at it.

I don’t like auto stocks very much. The only one I have ever used for Put Selling and covered calls was Toyota Stock (TM). You have to remember that I prefer stocks that have patterns that make Put Selling and covered calls easier and safer. I like my Put Selling to generate continual income while avoiding stock ownership.

Put Selling Toyota Stock (TM) For 5 Years

Starting in 2009 when Toyota Stock fell below $60.00 I commenced Put Selling the stock. Below $60 I felt Toyota Stock was very undervalued. In the 5 year Toyota Stock chart below you can see that over the course of 2009 to 2012 the stock stayed in a pattern that made Put Selling the $60 and the $70 put strikes straight forward and profitable. When Toyota Stock moved above $82.50 I stopped and moved to another stock. When it pulled back I was Put Selling those two strikes again.

Toyota Stock 5 Year Chart

 

Since January though Toyota Stock has shot up from $95 to a recent high of $134 and presently trades around $126.00 and 15.9 times PE. The problem for my method of Put Selling though is that Toyota stock, I believe, is way overvalued and I have no interest in selling puts at these elevated levels. For example if I sold the $120 puts at present and the stock pulled back to $100.00 and then worked its way lower, it would take a long time and many rescue strategies to protect my capital from assignment at such a high strike on a stock that I believe is pushed beyond a reasonable valuation. Ford after all trades at around 10.9 times PE and GM trades at 12 times PE and even GM I think is too high at 12 times.

The other problem with such a rise is there is no solid support within the stock except back below $95. Instead the rise in Toyota stock has left behind small pockets of support such as the $125 level which is where it is presently trading. But these support levels are very light and can easily break. Toyota Stock has been this high before, back in 2006 to 2007 before plunging in mid 2007 from $136 to $55 by the fall of 2008.Toyota Stock 2013 chart

FORD Stock (F)

The reason I mention Toyota Stock is to show how I trade a large cap stock. If a stock has a range bound pattern, it assists in making Put Selling easier along with higher safety of my trades from loss of capital. Ford stock on the other hand has a more difficult pattern to continually sell puts against. The best strikes for Put Selling would probably have been the $10 and $12 put strikes as there is good support at those levels, but once the stock moves much above $13.00 there is not a lot of strong support in Ford Stock but just light pockets of support here and there.

Ford Stock 5 Year Chart

Ford Stock At Present

Even the talk about the great run-up in Ford Stock to $17.00 today (Sept 4 2013) while exciting, is not unprecedented. Ford Stock has been this high once before in the last 3 years and also back in 2003 before it entered a long protracted collapse which saw the stock at $1.01 in November 2008.

ford stock 3 year chart

Put Selling Ford Stock

I am sure a case could be made for Put Selling Ford Stock, but looking at the 6 month chart below you can see how difficult it is to find solid support for Ford Stock. There is very light support at $17, $16, $14.50 and good support at $13.

Ford Stock 6 Month ChartFord Stock One Month Put Premiums

Then there is the question of put premiums that can be earned. Looking at Ford Stock I would prefer to be Put Selling the $15 strike to avoid assignment but as you can see in the put premiums below for September 21 2013 expiry, premiums are terrible. Even the $16 put strike is just half a percent for the risk of being assigned at $16 on Ford Stock.

Ford Stock Put Premiums Sept 21 expiry

For Stock Two Month Put Premiums

Even going out two months to October 19 2013 options expiry provides only a somewhat better return. My selected put strike, namely $15 still has less than 1% return.

Ford Stock put premiums October 2013

Toyota Stock Versus Ford Stock Put Premiums

Put Premiums for Toyota Stock are better and when I was Put Selling the $60 and $70 put strikes, very lucrative. For example with Ford Stock if I sold 30 naked puts for October 19 expiry at the $15 strike I would earn $330.00 and risk $45,000 of my capital.

When I sold 6 naked puts on Toyota Stock at the $70 put strike for just 1 month I normally earned anywhere from $0.90 to $1.25 a put which would bring in usually around $600.00 for the same risk of $45,000.

The difference though was I was Put Selling against strikes that made sense in Toyota Stock. If I was to sell puts against Ford Stock today, I would want to be Put Selling the $15 strike and as we have seen, put premiums are so low as to not warrant risking my capital.

When To Be Put Selling Ford Stock

The best time in my opinion to be Put Selling Ford Stock is once the stock has established solid support or a tradable pattern. As you have seen in the Toyota Stock (TM) 5 year chart, for Put Selling to be highly profitable and capital to be protected as much as possible from losses, I prefer a strong trading pattern that is stuck in a range. Range bound trading is perfect for Put Selling, but in both cases, Toyota Stock and Ford Stock, once that pattern is broken the chance of assignment of shares increases dramatically when a stock is in an uptrend that does not have solid support levels to fall back to.

What Trading Methods To Consider For Ford Stock

In my opinion, I would consider other stock and option strategies for Ford Stock. Everything from straight stock trading to credit spreads are probably safer for investors. Personally I have no interest in trading within Ford Stock, but that’s because it does not fit my Put Selling mould. That said there are lots of strategies that should make an investor quite profitable when trading within Ford Stock, I just think that Put Selling is not one of them.