How to Turn a Flat Stock into a Monthly Income Generator

Ford Motor Co. (NYSE: F) held an investor conference last week, on Oct. 2. The results were no great shakes – the call failed to spur a huge move up, and the stock has largely been moving up and down in a fairly tight 2% range ever since. You can “drive home” in Ford shares for $12.32 as of yesterday.

Investors must have missed the biggest takeaways from the call: The company snapped a three-month sales decline with an 8.7% gain in September sales, largely lead by a 21% surge in its popular F-Series pickups.

Not only that, but Ford is (rapidly) going to enter the lucrative electronic vehicle market, with a crack team in place to speed up development.

Still, investors have it in their minds that this isn’t a “high-growth” company anymore.

Thing is, it doesn’t matter if that’s true. We’re going to turn that perception to our advantage with a commanding position in the company for a few pennies on the dollar - and start collecting regular payments, too.

Here’s how…

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Ford Will Have Ups and Downs, but Will End Up Higher

We’ve had a bullish sneak preview for Ford’s future. In fact, car makers across the board should have higher stock prices in the cards in the next few quarters. General Motors Co. (NYSE: GM), for instance, reported sales increases of 12%, year on year, this September.

Why? A spike in demand: Economists at auto market research firm Cox Automotive estimate that at least 600,000 vehicles – around 8% of the total sold in America in 2016 - will need to be replaced in Texas and Florida alone, in the wake of the destruction caused by Hurricanes Harvey and Irma last month.

Like I said, Ford hasn't been considered a high-growth stock for a number of years, but it is up from its 2017 low of $10.56, which it hit on Aug. 18. At the current price above $12.32, we’re looking at an increase of $1.76 (or 16%) from this year's lows.

The stock is running into an overhead patch of resistance established in the first quarter of 2017 with a price range of $12.20-$12.90. If we can crack this level, and I think we will before long, we’ll see a breakout from here.

There is also the possibility that before Ford goes higher, it will refill the gap established by these increased sales numbers. If they settle back into that gap, we could see the stock back at the $12 price.

Either way, there is a very specific move to make in order to profit – and steadily, too…

This Is How to Play Ford the Long, Easy Way

The “time spread” strategy, also known as a “calendar spread,” is the best strategy to use.

Now, this is bit of a twist on the very simple, very low-risk “covered call,” which we've discussed before.

Here, instead of buying the stock to “write” (or sell) calls against, you would choose to buy an option a few months out. The best way is with a Long-Term Equity Anticipation Security (LEAPs) option.

The benefit of this strategy is that you are able to write these shorter-term monthly calls and collect the premium (the cash from the sale) into the account upon expiration - if the options expire without being exercised (if the buyer exercises the option to buy the stock, you’ll have your shares “called” away, which isn’t a biggie with a company like Ford).

That means you keep the longer-term option and repeat the process by selling another current (or front-month) expiration option, bringing in more money. Then the next option expires, again, hopefully without being exercised.

When you repeat this process enough, over several months, the sold option premiums offset the cost of the LEAPs.

Before long, it starts to become monthly income - that is, profit.

The Bottom Line: You pay less for the LEAPs option than you would for the stock outright – and you have less cost to overcome in the sales of shorter-term call options.

With less cost to cover, you receive profits much sooner than you would if you had to cover the cost of a stock purchase.

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About the Author

Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.

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