To The Moon

Overview

On June 5, 2024, I initiated a vertical put option strategy on Ford $Ford(F)$  with a maturity date of July 19, 2024. This involved selling put options at a strike price of $11.82 and simultaneously buying put options at a lower strike price of $10.82. This strategy, often referred to as a bull put spread, allowed me to collect an option premium of $26 per contract. I decided to close the position early on June 10, 2024, paying an option premium of $14 per contract, resulting in a net gain. This reflection explores the reasoning behind this strategy, the performance of Ford, and the outcomes of the investment.

Ford's Performance and Market Sentiment

Ford's vehicle sales for May 2024 provided a mixed yet predominantly positive picture. The company reported a total sales increase of 11.2% compared to the previous year, with notable growth in electric vehicle (EV) sales, which surged by 64.7%. Hybrid vehicle sales also saw a significant increase of 64.5%. Ford's truck sales, which represent a significant portion of their overall sales, rose by 11.2%, although sales of the F-Series trucks declined by 1.6%. SUV sales were up by 9.4%, indicating a robust demand across different vehicle categories.

These positive sales figures, particularly in the high-growth segments of electric and hybrid vehicles, contributed to a favorable market sentiment towards Ford. This backdrop provided a strong foundation for the bullish stance underlying the vertical put option strategy.

Rationale for the Vertical Put Option Strategy

The bull put spread strategy was selected to take advantage of the anticipated stability or rise in Ford's stock price, leveraging the market's positive reaction to the company's sales data. By selling the put at the higher strike price of $11.82 and buying the put at the lower strike price of $10.82, I positioned myself to benefit from time decay and limited downside risk, given the limited risk of the strategy. The collected premium of $26 per contract provided an initial buffer against potential losses.

Decision to Close the Position Early

On June 10, 2024, I decided to close the position by paying an option premium of $14 per contract. This decision was influenced by several factors:

1. Premium Decay and Market Movements: 

By closing the position early, I locked in a profit while avoiding the uncertainties that could arise as the expiration date approached. The decrease in the option premium to $14 per contract reflected favorable movements in Ford’s stock price and reduced the risk of potential losses.

2. Risk Management: 

Given the mixed signals in Ford’s sales data, particularly the decline in F-Series truck sales, there was a cautious optimism but also some inherent risk. By exiting early, I effectively managed risk and secured a portion of the potential gains without waiting for full maturity.

3. Market Sentiment: 

The overall bullish sentiment in the market towards Ford, driven by strong sales in the EV and hybrid segments, supported the decision to capitalize on the premium decay.

Outcome and Lessons Learned

The early closure of the position resulted in a net gain of $12 per contract ($26 collected initially minus $14 paid to close the position). This outcome demonstrated the effectiveness of the bull put spread in capturing time decay and market stability benefits.

Key Takeaways:

- Flexibility and Timing: The ability to monitor and adjust the position based on market developments allowed me to secure profits while mitigating risks.

- Market Analysis: Understanding the underlying asset’s performance and market sentiment is crucial for options trading strategies.

- Risk Management: Closing the position early reduced exposure to potential adverse movements, showcasing the importance of dynamic risk management.

Conclusion

The vertical put option strategy on Ford stock provided a valuable opportunity to leverage positive market sentiment and company performance metrics. The early closure of the position allowed me to lock in profits and mitigate risks effectively. 

$F VERTICAL 240719 PUT 10.82/PUT 11.82$