GM Strike Ends Just Ahead of Q3 Earnings Report

The company will report third-quarter earnings ahead of the close tomorrow

Digital Content Manager
Oct 28, 2019 at 11:46 AM
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The General Motors Company (NYSE:GM) strike has come to a close, with workers agreeing to sign a new four-year labor contract, which awards union members part of the 40-day strike a combination of one-time bonuses, and outlines the closure of three U.S. plants. While the strike may be over, the United Auto Workers (UAW) union is now taking this contract to Ford Motor (F) and Fiat Chrysler (FCAU) in hopes of striking similar deals. All this news comes just ahead of the carmaker's third-quarter earnings report, which is expected out before the open tomorrow. 

In today's trading, GM is inching higher, up 0.5% at $36.94, after hitting a one-month high of $37.30 earlier today. Now, the stock is set to take out a recent ceiling at its 50-day moving average for the first time since mid-September. Looking more broadly, GM hit its lowest point in four months in early October -- bottoming out at $33.71. Since then, the stock has tacked on 8.7%, and boasts a 10.5% year-to-date gain. 

GM Oct 29

Turning back to earnings, while the stock's last two next-day moves were negative, GM has tended to turn positive following reports from the last two years, which includes a 9.1% next-day pop this time last year. This time around the options pits are pricing in a move of 6.9% -- more than double the post-earnings swing of 3.4%, averaged during its last eight sessions. 

Speaking of options pits, calls are trading at a slightly quicker clip than usual today, with 9,743 across the tape so far, compared to 4,788 puts. Most of these positions are being purchased at the January 2020 40-strike call, followed by the weekly 11/01 39.50-strike call, where a chunk of these contracts are being bought to open. This suggests these traders are counting on even more upside following GM's earnings report. 

Short term options players have been singing a slightly different tune of late, with GM's Schaeffer's Open Interest Ratio (SOIR) of 0.83 sitting in the 77th percentile of its annual range. This means traders' appetites for put contracts expiring within three months are much bigger than usual.

Analysts, on the other hand, are still rooting for GM. Ten of the 13 in coverage call the equity a "buy" or better, with not a single sell on the board. Plus, the consensus 12-month target price of $47.42 is at a 28.3% premium to current levels, and represents a region just above the stock's all-time high back in 2017. 

 

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