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Option Brief: Bullish betting ran hotter than usual on General Motors Company (NYSE:GM) on Friday, with the auto giant seeing 41,000 calls cross the tape during the course of the session. This was a 68% mark-up over the equity's average single-session call volume, and more than double the number of puts exchanged. It looks as though both short- and longer-term speculators are counting on GM to continue along its current path higher over the next few months.
Most active were the January 2014 38 and December 37 strikes, where 8,075 and 5,446 calls changed hands, respectively. Both strikes saw a significant rise in open interest over the weekend, signaling the initiation of new positions. A healthy portion of the January calls traded at the ask price, hinting at buy-to-open activity -- a theory corroborated by data from the International Securities Exchange (ISE). Meanwhile, 90% of the December calls crossed at the ask, pointing to buyer-driven volume here, as well.
Since the January calls were exchanged at a volume-weighted average price (VWAP) of $1.20, traders are betting on GM to power north of breakeven at $39.20 (strike price plus the VWAP) by the close on Jan. 17. In terms of the December calls, the buyers will profit with each step the stock takes above $38.22 (strike plus VWAP of $1.22) between now and back-month options expiration. Of note, the $38 level hasn't been conquered by the stock on a daily closing basis since January 2011. Still, should the auto concern remain south of the strike prices throughout the respective expirations, the most Friday's call buyers stand to lose is the initial premium paid.
GM has performed solidly on the charts, gaining close to 24.2% year-to-date, and more than 45.6% on a year-over-year basis. Nevertheless, short interest accounts for 8.9% of the equity's available float, suggesting some of the aforementioned out-of-the-money call buying could be the result of hedging activity by short sellers.
It also bears mentioning that General Motors Company (NYSE:GM) is on tap to report quarterly earnings on Wednesday, Oct. 30, and has topped consensus bottom-line estimates in six of the past eight quarters. In fact, the stock has averaged returns of 0.3% and 1.3% the day and week after posting results, respectively. For the third quarter, analysts are projecting a per-share profit of 94 cents -- one penny higher than the firm's year-ago profit.
At last check, GM was 0.2% lower to trade at $35.80, despite scoring a price-target hike to $51 from $49 at J.P. Morgan Securities in pre-market action.
Please visit our GM quote page for charts and sentiment data on General Motors Company (NYSE:GM).