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General Motors Company (GM) Traders Bet Big On a Long-Term Bounce

Long-term traders bet on record-high territory for General Motors Company

by 4/15/2014 11:32 AM
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It's been a pretty dreary year for General Motors Company (NYSE:GM), due to the company's mass recall and, most recently, a shake-up to its senior management. Amid GM's fundamental and technical woes, though, calls have emerged as the options of choice on the automaker. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 3.27 ranks in the 76th percentile of its annual range. In other words, calls have been bought to open over puts at an accelerated clip of late.

In today's session, it's more of the same. At last check, roughly 21,000 calls had changed hands, compared to about 16,000 puts. The most active strike by a mile is the January 2015 45-strike call, where 13,166 contracts -- including a large block of 8,938 -- have crossed the tape. The vast majority of these contracts have traded at the ask price, and implied volatility has ticked higher -- two indications of the purchase of new positions. This strike price represents a record high for shares of GM, and as such, delta for the call is docked at 0.11, suggesting a slim 11% chance of an in-the-money finish at January 2015 options expiration.

Looking elsewhere reveals a similarly bullish bias toward an equity that's down more than 20% year-to-date to churn near $32.51. For starters, short interest accounts for a low 2.5% of the stock's available float, and would take less than two sessions to cover, at GM's average daily pace. From a contrarian perspective, this leaves little sideline cash available to help fuel a future rally.

Elsewhere, 10 out of 13 covering analysts still maintain a "strong buy" rating toward the stock, and the consensus 12-month price target of $44.87 not only stands at a 38% premium to present trading levels, but also in uncharted territory. Should any of these optimists follow in the footsteps of RBC, which cut its price target for GM this morning, additional technical headwinds could be in store.

On the fundamental front, all eyes will be on General Motors Company (NYSE:GM) next Thursday morning, when the automaker tells all in the earnings confessional. For GM's first quarter, consensus estimates are for a per-share profit of 41 cents -- a nearly 39% decline over the company's year-ago results.


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