Gun Your Motor with a Ford Option

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InvestorPlace
One of this week's Market Taker Edge trades is the Ford Motor Co. (NYSE: F ) June 15 Cash-Secured Put. Specifically, the idea of options trading investors is to short the F June 15 Put at $0.40 or higher, while keeping enough cash in your account ($1,460 per contract sold) to buy shares in the case of assignment of the put. F is one of our long-term bullish stocks that we've liked for a long time and plan to continue into the foreseeable future. Here's how the trade works. If F is trading above $15 a share at expiration, the puts expire and the 40-cent credit represents a profit, of $40 per contract. However, if F is below $15 at expiration the puts will be assigned resulting in a long stock position. If F is below the break-even price of $14.60, the trade is a loser at that point in time. However, that may not necessarily be a bad thing. This is an atypical edge trade. Generally we like the idea of trades with more limited risk. But this is part of a longer-term trade. In this case, assignment is acceptable. It is a way to acquire F shares at a potentially better price than where it is currently trading. If the puts are assigned, it sets up a potentially very good covered call opportunity by selling out-of-the-money July or August calls after June expiration. In either event (expiring and taking a profit, or getting assigned and buying stock at a "discount") this initial trade sets the investor up for benefits down the road. Dan Passarelli of MarketTaker.com writes the Market Taker Edge  options newsletter . Dan has more than 17 years' experience in the options industry as a market maker, Options Institute instructor and author of "Trading Option Greeks."