Unfortunately for Fiat Chrysler (FCAU) , the CEO transition within the company was accelerated over the weekend. While a transition was planned for next year, complications from shoulder surgery have pushed former CEO Sergio Marchionne into retirement.
The challenge here becomes replacing a man seen as one-of-a-kind, who nurtured the company back to light from very dark times. Fiat Chrysler is also set to report earnings this week, so there won't be much time for the new CEO, Michael Manley, to prepare to take the reins. Marchionne did not leave a roadmap for new management to follow although Manley has been part of his executive team and done a solid job righting Jeep.
The obvious hope here is Marchionne recovers. For FCAU stockholders that also means he may be able to impart his wisdom on how Fiat Chrysler can move beyond automobiles in its future as he hinted before falling ill. That's not meant to be callous, and it is a far cry from the importance of his health. It is a reality one must consider, though, when making investment decisions. Any decision on buying or selling FCAU should likely assume Marchionne will have little or no input into the company moving forward.
While many headlines point to the drop in shares Monday, the stock is only down around 2%. The struggles began in the first half of 2018. After a strong January, FCAU has made a series of lower highs and now sit almost 25% off its 2018 highs. Today's price places us back to the breakout levels of 2018. Should they fail, then I expect we'll ease back into the trading levels of fall 2017 with the stock trading between $16.75 and $18.75.
Making a move here is tough, especially with earnings around the corner. If I held shares, then I'd look toward a ratio call spread into earnings, possibly buying one FCAU August $19 call and selling 2 August $20 calls for every 100 shares I owned. If we see a small recovery, then traders can catch two cents for every one cent upside in the stock up through $20.
If I wanted possible entry into the stock here, then I'd consider selling the August $18 put at $0.40. If I were put the stock, then my average cost is $17.60, right in the middle of the expected trading zone. If the shares run higher, then I snag a quick 2.2% gain on my cash in 25 days. That's a 33% annualized cash secured put return. Not terrible if you are willing to buy the stock lower.
The options market is pricing in a 9% move for the Aug. 17 expiration. Since 2016, FCAU has only seen a 21-day post-earnings net move over 8.5% one time and that was back in January 2016. It has experienced a 10.5% move the day after earnings one time over the past 10 reports and that was April 2017. After the initial one-day pop, the stock faded quickly.
Granted, we have entered a new realm, and market makers will likely take a conservative approach to pricing volatility. The irony is that means volatility will become expensive. I wouldn't be a buyer of volatility.
This article first appeared on Real Money Pro. Click here to learn more about this dynamic service for active traders.
