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Option Brief: General Motors Company (NYSE:GM) puts are flying off the shelves at twice the normal rate this afternoon, after the battered automaker issued another round of recalls. Bears are taking a shine to the stock's short-term options, as evidenced by GM's 30-day at-the-money implied volatility (IV) of 24.1% -- up 10.5% from yesterday's close.
Most popular is the June 33 put, where about 7,500 contracts have traded -- more than three-quarters at the ask price, suggesting they were bought. Plus, IV at the strike is trending higher, hinting at possible fresh initiations.
By purchasing the puts at a volume-weighted average price (VWAP) of $0.88, the buyers stand to profit if GM is sitting south of breakeven at $32.12 (strike minus VWAP) at the close on Friday, June 20, when the newly front-month options expire. In light of the stock's descent today -- the shares were last seen 3.6% lower at $33.03 -- delta on the put surged to negative 0.53 from negative 0.32 at yesterday's close. In other words, the puts now have a better than 50/50 shot of an in-the-money finish at expiration.
Should GM maintain its grip north of $33 through the option's lifetime, the most the buyers stand to lose is the initial premium paid for the contracts. However, the equity's Schaeffer's Volatility Index (SVI) of 22% sits just 10 percentage points from an annual low, suggesting GM's front-month options are attractively priced right now, from a historical perspective, even after today's pop in IV.
On the charts, General Motors Company (NYSE:GM) has shed more than 19% in 2014, and has underperformed the S&P 500 Index (SPX) by nearly 9 percentage points during the past three months. Off the charts, the company has been plagued by recalls this year -- and the sentiment backdrop could point to more headwinds in the near term, should the bullish holdouts abandon ship.