A couple weeks ago we traded Ford with the idea of fading the 15% bounce in the shares from $13 to $15 that occurred in a little less than two weeks. The stock has since broken near term technical resistance at $15. A day before its Q3 earnings announcement we want to revisit the trade. To refresh here was the trade from Oct 9th:
Ford ($15) Buy Nov 15 / 13 put spread for .52
-Buy 1 Nov 15 put for .65
-Sell 1 Nov 13 put at .13
Now with the stock at $15.70, the put put spread is worth 20 cents. While we have a little less than a month for this view to play out, we are for now clearly wrong on direction and if the stock were to not do a whole heck of a lot then the probability that this trade becomes a total loss dramatically increases. Also after seeing GM’s strong results last week, and the stock’s nearly 6% same day gains, it makes sense to take the loss on this trade and move on.
Action: Ford ($15.57) Sell to Close Nov 15/13 put spread at .23 for a .29 loss
The fact of the matter is that auto sales are on fire, and the scandal at Volkswagon has served as a tailwind for U.S. automakers. The trade was primarily technical, and while I think an entry here is far more attractive than it was at $15 two weeks ago, I am not going to throw good money after bad into an event.