Stutland: Yes, Ford Can Go Higher
On Tuesday, the durable goods report for October showed that orders were unchanged, mainly due to weakness in auto sales, airplanes, and defense. However, yesterday,Ford announced that it is on track to have its best hybrid sales month ever, and will increase its electrified car market share to 11%. That would be a five-fold year-over-year increase.
The primary driver of this growth in the U.S. is Ford's new C-MAX hybrid. In October, the first full month in which C-MAX hybrids were sold, Ford outsold the Toyota Prius 3,182 to 2,769 and reported that 70% of buyers were new to Ford.
In more good news, Ford continues to break sales records in China due to the popularity of the Focus there. Ford has posted back-to-back record-breaking Focus sales in China the past two months, which has helped send wholesales up 14% year-to-date.
Given these record sales, perhaps it is no surprise that options traders have been getting upside exposure by buying calls on the stock.
Yesterday the stock jumped 2.5% higher, and 2.7 calls were traded for every put. The biggest trade of the day was the purchase of 8,418 January 11 calls for $0.68 each, which was done with the stock at $11.40. This is a bullish bet that Ford will be above $11.68 at January expiration, or 2.5% higher. (Track Ford's Stock Here)
Buying calls on the stock is the best way to play this name, because of how volatile durable goods sales have been in the U.S. and abroad. And although sales appear strong in the U.S. and China, they are down 11% year-to-date in Europe, as the economy continues to weaken there. Buying a call removes a lot of the downside risk of owning the stock, but allows you to profit if the stock rallies into Ford's January earnings announcement, which is likely to show a strong quarter. (Read More: Sticker Shock: New Car Prices Are Going Up)
Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."
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