Ford Motor (F) soars after cutting its automotive debt

Posted Apr 6th 2009 1:00PM by Brent Archer
Filed under: Major Movement, Good news, Ford Motor (F), Options, Technical Analysis

Ford Motor (NYSE: F - option chain) shares are headed higher today after the company announced today that it is cutting its debt by $9.9B by using cash as well as common stock. This is expected to lower its automotive debt by about 40% and save the company $500M in interest each year. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on F.

F opened this morning at $3.27. So far today the stock has hit a low of $3.25 and a high of $3.98. As of 11:55, F is trading at $3.72, up 47cents (14.5%). The chart for F looks neutral and S&P gives F a 3 STARS (out of 5) hold ranking.

For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $2 range. A bull-put credit spread is an options position that combines the purchase and sale of put 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 22.7% return in just five and a half months as long as F is above $2 at September expiration. Ford would have to fall by more than 46% before we would start to lose money. Learn more about this type of trade here.

F hasn't been below $1.63 (the break even point of this trade) since February and has shown support around $2.75 recently.

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, inthenews, Investors Observer, InvestorsObserver, options