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1733% and 16%! The Winnings just Beginnings, Bro. And Hey! Look at That Ford Swerve! (F, OTIS, CAG)

Posted on November 8, 2021

We’re pleased to report that with today’s installment of A Jew and His Money we resume our regular publication regimen.

All affected souls have now returned from hospital, or are working from home until such time as the affliction is put past.

We want to thank all of you who reached out with good wishes and prayers; we were overwhelmed by the support and concern of our readers.  G-d bless you all with good health and a Niagara rush of prosperity.

Before we get to today’s trade, we have two fat winners to close.

The first is our OTIS trade from August 2nd.  It arrived in a communiqué entitled Thanks, I’ll Take the Stairs and urged you to sell the OTIS December 17th 85/90 CALL spread for a credit of $2.50 and buy the OTIS December 17th 85/75 PUT spread for the same.  Zero premium was the result.

And now…?

The CALL spread can be repurchased for $0.90 (1.05/0.15), and the PUT spread can be sold for $3.65 (4.30/0.65).

Execute it, and you skip home with $2.75 on zero outlay.

Adjusted for minimal commissions gives you an exorbitant 1733%!

But there’s more!

Our CAG trade, the details of which can be found HERE, has exhausted us.  It could be there’s more profit to be had, but she may also just stay range-bound for some time to come – it’s impossible to tell.

So we’re shutting her down and redeploying elsewhere.

Situation: we have an open short on a single lot of CAG at $33.50 and a debit of $0.30, and the stock is currently trading for $32.59.

Buy back the short position and take your $0.61 for a 16% gain.

Then maybe take the wife to Denny’s, or buy some ammo for the 9mm.

Today’s trade is based on automaker behemoth Ford Motor Co. (NYSE:F), whose shares have surged 55% in the last seven weeks – mostly on hype related to their (partial) acquisition of EV maker, Rivian.

We’ll have more to say on that shortly, but in the meantime, have a look at the fundamentals –

  • P/E (which averages 8 to 10, under normal circumstances) is 22.80.  For the sake of comparison, GM trades today with a P/E of 7.82.  What is this? – Tesla!? 
  • Dividend Yield is a respectable (in this market) 2.07%.
  • Price to Book is 2.11.
  • However, the company carries too much debt: Debt/Equity is a burdensome 3.95 (!).
  • The company’s expecting an extraordinary leap in sales in the coming year, mostly related to the new edition Ford F-150 EV, but the fact remains that Q/Q Sales and Q/Q Earnings dropped by 4.80% and 23.80%, respectively, as of the latest report some ten days ago.
  • According to analyst consensus estimates, price targets have been bested and the upside is now all-in.

Have a look at the daily chart –

Technically, the latest price action is unsustainable –

  1. Why?  For starters, RSI is now overbought (in green) – and without justification.  In fact we’re not sure Ford shares should ever outperform the broader market.  Something about the smell there, and all that grey smoke.
  2. MACD’s latest rise also looks to be ending.
  3. Volume surged during the latest buying round (in purple), aligned with both the above-mentioned overbought RSI read and the…
  4. Parabolic price rise of the last seven weeks, that
  5. Left a large gap from $15.90 (in blue) and
  6. Formed a deadly rising wedge (in red).  This formation is always bearish, and is triggered when price drops through the lower trendline.
  7. Should that happen (as we fully expect it will in the next week or so), initial support emerges at the short-term moving average at $16.  That would entail a very hefty 17% decline.

If it stops there.

Here’s the weekly chart that exposes the cracked chassis underpinning F’s recent performance –

  1. Parabolic price gains show up more clearly on the weekly paste-up (in blue),
  2. As do the outsized gains off the Batflu bottom (in red) – 400% in about the worst car-buying climate of the last half century (in red).
  3. But most importantly, weekly RSI is now dangerously close to 80 overbought (in green).  Past readings at these levels have resulted in a quick chill running through the bulls, and the bears wresting control.

And for all that, we’ve crafted a very handsome trade that plays on Ford’s imminent pullback.

It looks like this –

A Jew and His Money recommends you consider a short sale of F stock at $19.29, along with the purchase of a protective F January 21st 24 CALL for $0.49.  Total credit on the trade is $18.80.

Rationale: we like the downside story on Ford over the near term, and a short sale with a protective CALL is the best way to play it.

The full downside is open to us and our breakeven arrives at $18.80 – just 2.5% below the current price level.

Maximum loss is $4.71 (difference between the short sale price and the protective CALL strike).

We’ll very likely see Ford shares trade to $16 before the January expiry, and we’ll look to close the trade as we approach that figure.

Good health and parnassa to all.

With kind regards,

Hugh L. O’Haynew

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