With the news that the government is selling a large portion of its stake in General Motors (GM) back to the company at a price above the close yesterday, both GM and Ford opened higher this morning. Ford has now traded back to almost flat at this point (10:20 am EST).
With the run higher yesterday in F, how does that impact the warrant expiration strategy? Using our previous posts, which outlined a strategy to trade the warrant expiration pattern, we would have taken no action yet in the stock. Playing the pattern means getting long F into the final day of trading for the warrants (FWS), which is not until Monday.
From a tactical perspective we would like to see the stock weaken slightly over the next few days and be lower than it is now to facilitate a purchase on Monday (Dec. 24th). While this would be ideal from a price perspective, it does not have to play out this way in order for the pattern to work. A stock showing strength into an expiration is not necessarily bad, but can “steal” some of the pop from the post warrant expiration trade.
Given the moves in F this week, combined with the general market moves around the fiscal cliff talks and this mornings GM news, we believe the pattern is still intact for a warrant expiration trading pop in the stock. Ideally the stock will pull back to the $11.50 mark, for a better entry. We will continue to monitor the stock for adherence to the warrant expiration pattern for the remainder of this week and on Monday.
If it has not been clear in our following of the Ford warrant expiration so far, the pattern is to enter and exit a trade on Ford common stock. Warrant expiration patterns are short term patterns and should be used for a short term trade. The warrant expiration has no bearing on the long term fundamentals of a company and where the stock will be six or twelve months down the road.