Ford Motor Company: How to Position Your Options Trade before Earnings on Thursday

Ford Motor Company (NYSE:F) is set to release Q2 2014 results on Thursday and all hands are on deck to see how the options of the automaker should be traded. Ford with its market capitalization of $71.03B is a producer of automobiles. Ford produces and distributes automobiles in 200 markets that cut across six continents. The company operates in two segments: Automotive and Financial Services. The automotive segment with generates about 94% of revenue deals with the actual production, sales and services of vehicles while the financial services segment deals with financing, leasing and insurance of vehicles.

Ranging Forward in Recent Times

The stock chart below shows how shares of Ford have traded in the year-to-date and you can see that the company has rewarded bulls with a modest 15.04% gain. The RSI of 68.40 and the fact that the stock is trading above its 50 and 200-day moving averages suggests that the stock has much upside potential ahead.

Ford Stock Chart

How to Trade F Options

Ford investors have a knack for precipitating a selloff whenever the company’s earnings fail to live up to expectations. In the most recently reported quarter (Q1 2014), the company reported its 18th consecutive quarter of pre-tax profit in which revenue grew by 0.8% to $35.9B. However, the fact that Ford missed analysts’ earnings estimate of $0.32 when it posted earnings of $0.25 on revenue of $35.9B sent the stock falling in the two weeks that followed.

Ford is set to release second quarter results on Thursday and it is not far-fetched to expect investors to precipitate another sell-off if the company fails to live up to their expectations. Nonetheless, I am bullish on the company and I will buy up the F Dec 2014 18.000 call (F141220C00018000) at a bid of $0.70 once the market opens on Friday after Ford releases second quarter earnings on Thursday.

Fundamental Reasons to Stay Bullish on Ford

I have delved into the fundamentals of the stock in order to verify that the upside potential is justified. The strength of the fundamentals and the quality of earnings that Ford delivers on Thursday can help you to make an informed decision about how Ford options should be traded.

  • Expansion into Emerging Markets

Ford is actively pushing for a foothold in the emerging markets of the Asia-Pacific, Middle East and Africa where a boom in the auto industry is likely to happen in the next couple of years. It might interest you to know that Ford’s sales in fiscal 2013 were boosted 49% because of an expanded product line up in China. Ford has forecasted that its global sales will increase by 50% to 8 million vehicles by 2015. I posit that Ford will continue to record significant increases in its revenues based on the anticipated 50% increase in global sales in the next calendar year.

  • Improving Situation in Europe

Ford has been losing money (pre-tax loss) in Europe since 2012 and the company has lost as much as $3.5B in the continent. In the last reported quarter, Ford lost some $194M in Europe down from a $231M loss in the year ago period. However, Europe does not paint a completely disappointing picture as the company’s revenue in Europe increased by 18% t0 $7.8B in the same period. Ford has already recorded a 6.6% increase in European sales in the first half this year and I strongly believe that this increase in sales will have a positive effect on Ford’s total revenue in the soon-to-be reported quarter.

— Daily Option Alerts

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