Stocks quoted in this article:
After initially ticking higher, General Motors Company (NYSE:GM) has spent most of the session just south of breakeven, as traders digest monthly sales figures for the automaker. The shares are now testing the support of their 50-day moving average -- a trendline that hasn't been violated on a daily closing basis since Sept. 3 -- and option traders are gambling on an extended short-term dip for GM.
In early afternoon trading, GM has seen roughly 18,000 puts change hands -- more than doubling its average intraday put volume. Among the most popular is the weekly 10/4 35.50-strike put, where nearly 1,700 contracts have crossed at a volume-weighted average price (VWAP) of $0.36. Seventy-five percent of the puts traded on the ask side, and volume has exceeded open interest at the strike -- signs of buy-to-open action.
By purchasing the puts to open, the buyers expect GM to breach the $35.14 level (strike price minus VWAP) by the end of the week, when the options expire. From the stock's current perch at $35.95, it would take a retreat of 2.3% in order to touch breakeven. Should GM remain atop the strike through Friday's close, the most the buyers are risking is the initial premium paid for the puts.
Elsewhere, one option player is using both puts and calls to predict GM's short-term trajectory. Specifically, blocks of 7,311 puts and an equal number of calls crossed on the November 36 strike. The contracts traded at the bid price -- the puts at $1.55, the calls at $1.49 -- suggesting they were sold, and the International Securities Exchange (ISE) confirms the initiation of new positions. By implementing a short straddle, the speculator expects GM to finish right at $36 when November options expire, allowing him to pocket the initial net credit of $3.04 per pair of options, which represents the maximum potential reward.
On the charts, GM has added nearly 56% over the past year, flying in the face of skepticism on Wall Street. Off the charts, the company today said domestic auto sales fell a year-over-year 11% in September, as Chevrolet and GMC sales dropped 15% and 9.7%, respectively. From August, GM's U.S. sales backpedaled 32%.
Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis«
perspective, please visit our Trading Floor Blog section.