F Covered Call

February 2, 2024
Covered Call: Buy Ford (F) Stock and Sell the February 12 Call (exp. 2/16) for a net price of $11.65 or less.

Ahead of earnings on Tuesday after the close, Ford (F) option activity heated up yesterday and the stock also received an upgrade. First, here are the bullish options trades:

Buyer of 15,000 Ford (F) February 12 Calls (exp. 2/9) for $0.40 – Stock at 12 (earnings 2/6)

Buyer of 10,000 Ford (F) March 12 Calls for $0.52 – Stock at 12.

And here is some of the upgrade from Morgan Stanley, which named F its Top Pick in U.S. Autos:

“It’s well known that EV momentum is stalling. What is less appreciated is Detroit’s response. A ‘toggle’ on capital discipline and shareholder return at Ford can put our $21 bull case in play.”

Let’s get involved with F with a slightly bullish, though mostly directionally neutral, covered call.

To execute this trade you need to:
Buy F Stock
Sell to Open the F February 12 Call.

For example, you can buy F stock for 12.05, and sell the February 12 call for $0.40. The important factor on this equation is the stock price paid, minus the premium collected via the call sale equals 11.65 or less.

For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …

The most you can make on this trade is $35 per covered call, or a yield of 3% in two weeks time should F close above 12 on February expiration.

The breakeven on this trade is at 11.65.

The risks I see in this trade are pretty straightforward …

The company will report earnings on Tuesday after the close, and the stock could fall if the numbers disappoint.

And as always, should the general market fall, F will likely decline with it.

That being said, given the recent strength in the market, as well as the bullish option activity in F, let’s get involved via a short volatility play.