On Tuesday Ford Motor Company reported an EPS beat for its 3rd quarter earnings. This sent shares 8.2% higher on the day and put a bid under Ford call options. The biggest trade of the day was the purchase of 11,111 Dec. 12 calls for $0.11 with the stock at 10.85. This is a bet that Ford will be above 12.11 at expiration, or 8.5% higher than yesterday’s close. This bullishness undoubtedly comes as a result of Ford’s robust domestic sales, which more than made up for weakness in Europe. Ford’s North American operations posted a pre-tax profit of $2.3 billion, which is the best third quarter the region has ever recorded. This profit was driven by margins, which came in at 12% and attributed to sales of high-end trucks. In Europe Ford posted a $468 million loss and said it could lose up to $500 million next quarter. Year to date Ford has lost $1 billion in Europe, which has led CEO Alan Mulally to announce a major restructuring and layoffs there.
Though Ford’s numbers this quarter are good, it is still unclear if North America can carry the company through a European recession. If Ford’s European restructuring is able to minimize losses while sales remain robust in North America the company will be fine, but that is a big if. To play Ford I like this strategy, which keeps risk fixed and profits from momentum the stock might have after a great quarter like this one. Ford’s chart suggests the stock is likely to test the 12-13 range it traded in during the first quarter of 2012, which would make the Dec. 12 calls a profitable trade.