The Trades:

Buy to open the October 19, 2018 call on Ford (NYSE: F) with a strike price of $10.00 at $.13 or lower. Symbol (F181019C10)

Buy to open the October 19, 2018 call on General Motors (NYSE: GM) with a strike price of $37 at $.57 or lower. Symbol (GM181019C37)

Rationale:

Investors have abandoned auto stocks this year for a plethora of reasons.

A big one is an uncertainty over the fate of NAFTA. Demands requiring more parts to be manufactured in NAFTA based countries increases the cost of making each car. In addition, the price of steel has risen dramatically due to tariffs and cuts into the profits per vehicle.

I am not entirely convinced that auto companies are out of the woods, which is why I am recommending just the call options and not including the stocks in our portfolio. (The stocks that I recommend for the portfolio tend to be longer-term holds and ones where I hold great conviction).

However, these stocks look ripe for a short-term bounce. All are profitable, trading near record-low valuations based on book value and price to earnings (P/E) ratios.

The October expiration date on these puts does not capture the companies’ third-quarter earnings report but will include the release of September sales data.