Ford (F) drops as price target is cut

Posted Jun 26th 2008 1:52PM by Brent Archer
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 consider a September bear-call credit spread above the $6 range. A bear-call credit spread is an options position that combines the purchase 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 will 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 expensive cars and trucks that do not 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 may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in F.

Tags: F, Ford, General Motors, GeneralMotors, GM, inthenews, Investors Observer, InvestorsObserver, options

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Reader Comments (Page 1 of 1)

6-26-2008 @ 4:53PM

Linda Dorfmont said...

I just picked up some more Ford today. It pays dividends and I don't see any police cruisers, sheriff's cars or the mayor driving Chevys. They got a lock on the municipal market and a good share of taxi cabs in the area. I'm guessing the rest of the country is similar.

6-27-2008 @ 12:08PM

jpdr1100 said...

My state is switching over to Chrysler police vehicles (Dodge Chargers). NYC is thick with minivan taxis. I wouldn't buy Ford stock thinking they have any lock on commercial cars. And they are looking to drop the Crown Vic ASAP anyway.

6-27-2008 @ 3:47PM