Shares of Ford Motor Company (F) are down about 15 percent in the past year. One trader sees the potential for the company to drop further in the coming weeks.
That’s based on the July $16 puts. With 38 days until expiration, 15,636 contracts traded compared to a prior open interest of 521, for a 30-fold rise in volume on the trade. The buyer of the puts paid $2.59 to get into the trade.
Shares recently traded for about $13.50, so the $16 strike price is about $2.50 in-the-money, or about the price of the contract now. In other words, the buyer of the options is making a bet against shares without paying a premium.
The company could see further downside, given that the company hasn’t been profitable in the past year. Revenues are also down about 5 percent in the same time, as the company has had to contend with shutdowns amid supply chain issues.
Action to take: Investors may like shares closer to their 52-week low near $12, as that would put the stock at about 5 times forward earnings and near book value. Shares do have a sizeable yield near 3 percent right now, but that could go higher as prices go lower.
For traders, the July puts are well priced given the lack of premium in them. Plus, with recent market volatility, any further downside in shares could lead to a modest mid-double-digit profit in the coming weeks.
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 of the companies mentioned in this article.