Ford Motor Co. (NYSE: F) cash-secured put

Ford Motor Corp. (NYSE: F) shares have experienced a dramatic 23% gain so far in March, launching to today’s high above $14.50 from $11.74 as investors rediscover this surprising survivor of the humbled American auto dynasty. With bullish commentary from industry analysts on Ford’s restructuring and expansion plans, and ratings upgrades to its debt outlook from Moody’s, the chance to buy this stock near $12 again may be fading.

More News On F

• F

• Mazda reduces quarterly loss on sales growth
  July 30, 2010
• Obama to sell auto bailout good news in Michigan
  July 30, 2010
• Most active New York Stock Exchange-traded stocks
  July 29, 2010

Virtual Trade F

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One way to play the name is with a cash-secured put strategy that offers the opportunity to sell option premium and set a lower target for buying the stock. And using near-term options allows you to repeat the strategy several times a year. Selling the April 14 puts for 50 cents gives you a chance to be assigned and take delivery of F shares at an effective price of $13.50, 5% below current levels.

F Cash-Secured Put Trade Details:

F shares are trading at $14.11, relatively unchanged on the day.

Cash-Secured Put –

• Sell the F April 14 put (near-the-money) for $0.50 per contract
• Net credit of $0.50 ($50 per lot)
• For every contract, set aside $1,350 in cash: [(14 – 0.50) * 100]

Securing the sold put with cash means the capital is available to buy the shares if assigned. At this point, you’ll have purchased F shares at an effective price of $13.50, or roughly 4% less than they are currently priced.

Open a free virtual trading account for a visual of the risk/reward dynamics of this cash-secured put.

Profit/Loss Details:

Maximum potential profit: $0.50 per contract (the premium collected) minus commissions. (This profit is for the short put option only and may change if the investor opts to buy the stock at $13.50).

Maximum risk: $13.50(the strike price minus the premium collected). Return on risk for this trade is 3.7%.

Breakeven: $13.50 (the strike price minus the premium collected).

Remember, trading Ideas are generated by the ONN Idea Generating Platform as a starting point for people to begin their own research. Trading ideas are not intended as trading or investment advice or recommendations that any particular security or strategy may be suitable for any specific person. You are solely responsible for your investment decisions, but we hope that some of these ideas will give you a starting point as you look for strategies to employ.

For more on F:

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Diverging long-term expectations for Ford Motor (F)