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How to Make 40% in 45 Days With a Bet on Ford

Last week I suggested a bearish spread on Tesla that would make 67% in 49 days.  The stock has fallen about $7 since then, and the spread that I placed has already picked up 30% in a single week.  I am tempted to close it out and take the profit, but I think I will wait it out and happily collect the entire 67% in six weeks.

Today I am reporting on a spread I placed on Ford (F) on Friday when the stock was trading at $12.54.

Terry

How to Make 40% in 45 Days With a Bet on Ford

Several articles have been published lately which are bullish on Ford, including Ford and Its 4.8% Dividend Yield, and Ford: Break-Out Ahead

On Friday, when F was trading at $12.54, I made a bet that this high dividend yield would at least keep the stock where it is right now for the near future.

Here is the trade I made:

With F trading at $12.54:

Buy To Open # F 28Apr17 11.5 puts (F170428P11.5)
Sell To Open # F 28Apr17 12.5 puts (F170428P12.5) for a credit of $.30 (selling a vertical)

This spread is called a vertical put credit spread.  I prefer using puts rather than calls if I am bullish on the stock because if you are right, and the stock is trading above the strike price of the puts I sold on expiration day, both put options will expire worthless and no further trades need to be made or commissions payable.

For each contract sold, I would receive $30 less commissions of $1.00 (the rate that TastyWorks.com charges).  By the way, you should check out this new brokerage firm because their commission rates are just about the best you will find anywhere.  Here they are:

TastyWorks commission rates

TastyWorks commission rates

Yes, that’s true.  Absolutely no commissions when you close out a trade.  TastyWorks was started early this year by the same people who started thinkorswim (which was later sold to TD Ameritrade).  They haven’t quite set up everything yet, but the commission rates and great trading platform is bound to attract many new subscribers (tell them we sent you, by the way).

The broker will place a $100 maintenance requirement on the above spread.  Subtracting out the $29 you received, your net investment is $71 per spread ($100 – $29).  This is also the maximum loss you would incur if F closes below $11.50 on April 21, 2017 (unless you rolled the spread over to a future month near the expiration date, something I often do, usually at a credit, if the stock has lost a bit since the original trade was placed).

Making a gain of $29 on an investment of $71 works out to 40% for the 6 weeks you will have to wait it out.  That works out to over 300% annualized.  Who says options can’t be fun?

As with all investments, option trades should only be made with money that you can truly afford to lose.

Happy trading.

Terry

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I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

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