The news Friday if you are a General Motors (GM) or Stellantis (STLA) shareholder is not good.
The UAW expanded its strike to another 5,600 more workers Friday as they walked off the job at 38 General Motors and Stellantis parts distribution centers in 20 states. This brings the percentage of UAW workers actually on strike to nearly 13% of its 146,000 workers.
If you’re a Ford (F) shareholder, you’ve been spared from this latest round of walkout. The UAW feels Ford’s management is doing something to get a new contract completed.
“We’ve made some real progress at Ford,” The Associated Press reported UAW President Shawn Fain said during an online presentation to union members. “We still have serious issues to work through, but we do want to recognize that Ford is showing that they are serious about reaching a deal.”
“At GM and Stellantis, it’s a different story.”
While things could get messy in the coming weeks, there are ways to play the current labor strife using options -- and not just from the Detroit Three.
Here are two ways (and a bonus third possibility) to play the current situation based on Friday’s unusual options activity.
Have an excellent weekend.
Ford’s Looking Good
Maybe the fact Ford executive chairman Bill Ford and his family have seen a strike or two over the years has something to do with it, but no one wins in a prolonged strike, especially not one where the three companies involved have made a ton of money in recent years.
Approximately $99 billion in net profits, according to S&P Capital IQ data tracked down by Yahoo Finance senior columnist Rick Newman. It’s a lot. And don’t get me started about how much Mary Barra made in 2022. There’s a stock that’s gone sideways her entire decade as CEO.
Demand has shot up with the Ford F-150 Lightning’s $10,000 price cut in August. It now has something like 45 days of orders for the truck. Ford does not want to lose momentum with a strike.
After upgrades to its factory in Dearborn, Michigan, it will be able to produce 150,000 F-150 Lightning annually, 3x the previous production capacity before the upgrades.
So, the first play is Ford. I like its position in the cat-and-mouse game the automakers and UAW are playing. The future is only possible with workers able to build these vehicles. They have to get paid. Ford is smart enough to know this. Or, at least, pretend they do.
The Ford Sept. 29 $11.50 call has a volume of 35,021 as I write this, 10.64x its open interest. The ask price is $1.07 with a 0.94873 delta. If Ford shares rise by $1.13 over the next week (9%), you double your money if you sell before expiration.
The shares are up nearly 3% today, while GM and Stellatis are flat today. This suggests investors feel Ford is in the best position of the three.
While the ask price is 9.3% of the strike, which is relatively high, it’s still not a huge bet to make, given the opportunity to exit the option with a near-term profit.
General Motors
As I said in the previous section about Ford, Mary Barra has done little to move GM’s share price in the nearly decade she’s been CEO. On Dec. 11, 2013, when the announcement was made about her hiring, GM stock was near $40. Today, it’s $32.63, down 18%.
Now, she wants to play hardball with unions after making 361 times the average GM employee’s pay in 2022. Over a decade, she’s easily made $150 million, if not more.
I don’t usually agree with unions and their tactics, but it’s next to impossible for any of the Detroit Three to seriously claim they can’t afford to pay their workers what Fain and the UAW are asking.
What’s amazing is that GM and Chrysler received billions in government bailouts, implemented tiered compensation as part of these bailouts, which was meant to be a temporary fix, and adopted it permanently.
If you joined the company after 2007, your average hourly pay was half what someone made for the same job who joined before 2007.
Yes, there are plenty of little wrinkles to the compensation the union is manipulating to make its case. Still, ultimately, we remain in a work environment that requires higher pay to keep and retain talent.
GM has to pay the piper if it wants to remain relevant in North American auto sales.
So, I’m looking at the Oct. 13 $31 put that expires in three weeks. The bid price is $0.42. That’s a 22.6% annualized yield on the premium. That’s if you sell it. If you buy it, which means you think GM shares will fall below $31, the ask costs you $43 per 100 shares.
While that’s not a lot, GM shares over the past five years have generally bottomed at $32, the exception being the March 2020 correction when it fell into the high teens, so unless the crap hits the fire in the next three weeks, the odds are less than 50/50 that you’ll be able to exercise your put.
The Bonus Play
As has become commonplace, Tesla (TSLA) has a whole bunch of options exhibiting unusual options activity on Friday, several with Vol/OI ratios above 5.0x. Most of them calls.
Tesla’s most significant advantage is that it’s non-unionized at the moment. I say at the moment because there is talk, according to New York Times reporting, of unionization at Tesla’s U.S. plants. Were that to happen, its margin advantage would slip considerably.
However, that will not happen by the end of this year, so a bet on Tesla stock through options remains a viable play.
Given the potential downside at both GM and Stellantis, Ford and Tesla are the better options until the strike situation is resolved.
When that is, nobody knows.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
