Trading on Margin Challenge – Episode One – Ford

Classic Ford pickup truck in a field.

I’d been watching Ford’s stock closely all of January. It was finally time. I pulled the trigger, buying up 100 shares with money borrowed from my broker, Robinhood. In my post, Is Trading with Margin Safe?, I teased that I would take off the training wheels, trade on margin, and chronicle the entire process. I plan to write a series of posts sharing my thought process, my transactions, and my results using $1000 in margin. There is a lot for me to learn, and my hope is that others can learn along with me. Or at least be mildly entertained.

Stalking Ford – January 24th-27th, 2020

I chose Ford (F) for my first margin play for a few reasons.

  1. Familiarity – I’ve traded and watched F for two years. I know how it moves and how low it might go on a dip. $8.50 has been a solid support level.
  2. Options – Buying stock on margin means I’m paying a slow trickle of interest every day. If the stock price drops and I need to hold for a longer period than intended, I can sell a covered call and receive a few dollars from the option premium. Whatever amount I gain from the premium helps offset the interest paid. To sell a covered call, one needs to own 100 shares of that stock. I’m trading with $1,000, and F was trading around $9.00, so I can buy 100 shares and stay under the $1,000 I dedicated for this challenge.
  3. Research – Ford is a high cap, stable company selling products I understand and believe in. The share price had traded in a range of $9.15 to $9.30 for a couple of weeks. It broke downward to $9.00, which is an entry point I feel confident buying at. Anything below $8.70 I believe signals a strong buy for F. My next point will illuminate why I was ready to jump in at $9.00 instead of waiting to see if it would continue dropping.
  4. Dividend – Anyone holding F going into January 29th earned a $0.15 per share dividend payment. A dip in price and the ex-dividend date being days away made conditions right for me to buy. Earning $15.00 in dividends right off the bat is a nice risk reducer and guaranteed profit.

See what I did there with my four reasons? F-O-R-D Yep, I’m as smug as an 8th grader who’s stumped the teacher.

Margin Challenge Status – January 30th, 2020

By the 27th, I had bought up 100 shares. The clock was ticking. Interest was accruing. The challenge was on. Here’s the status of the challenge as of the 30th:

  • Holding 100 shares of F at $8.98 per share for total of $898.11.
  • Interest owed to my broker accruing at $0.125 a day. 4 days in ($0.50).
  • Earned a dividend of $15.00.
  • $14.50 ahead in the challenge.

I will be watching Ford closely next week. Ford reports earnings on February 4th, and the price could move dramatically with that report. Last week, the overall market slumped, as Joe observed in his weekly update. Ford dipped into the $8.70s. It seemed to find support around $8.74 before settling around $8.80. I am wary of this dip, but not troubled. The market seemed to be looking for a reason for a small correction, and it should make up ground next week. Although, a random Trump tweet could always make Wall Street run for cover.

Ford has a lot of positive buzz regarding its partnerships with Mahindra and Rivian. Not to mention its own electric vehicle, the Mustang Mach-E. I believe the stock price already carries the disappointment of the reduced profit outlook that Ford announced last earnings. Not to say there couldn’t be more disappointment on Tuesday. Needless to say, I will be paying attention to that earnings report. My next margin challenge post will be sure to cover the fun whichever way it goes or doesn’t go.

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