Automaker Ford Motor Company (F) has declined over 12% in the past year, amid a slowdown in consumer spending and high auto loan rates. One trader sees a further decline in the weeks ahead.
That’s based on the October $10 puts. With 59 days until expiration, 12,407 contracts traded compared to a prior open interest of 237, for a 52-fold rise in volume on the trade. The buyer of the puts paid $0.28 to make the bearish bet.
Ford shares recently traded for about $10.50, meaning the stock would need to decline by about $0.50, or just over 5%, for the option to move in-the-money. Ford shares have a 52-week low of $9.49, set during the early August selloff.
The company has had a lackluster year, with earnings down by about 5%, amid a 6% increase in revenues. Shares trade at 10 times earnings, and just over 5 times forward earnings estimates, indicating a potential value play.
Action to take: Investors may like shares in the low $10 range, but there may be some short-term volatility keeping a lid on shares for the time being. At current prices, Ford also pays a 5.7% dividend.
For traders, the October $10 puts could see mid-double-digit returns in the coming weeks, especially on a big down day for shares. Traders should look to take quick profits, and look for long-side trades on any drop under $10.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.