General Motors Company (GM) Traders See a Strong Start to the New Year

Option bulls continue to target General Motors Company, despite its long-term troubles

by Karee Venema

Published on Dec 1, 2014 at 2:10 PM
Updated on Jun 24, 2020 at 10:16 AM

It's been a dreary year for General Motors Company (NYSE:GM), which has shed 19% amid its numerous recall-related woes. Today, the equity is down 1.1% at $33.06, after faulty ignition switch claims rose slightly last week -- including the addition of another fatality. Option traders are paying no mind, though, and continue to scoop up long calls at an accelerated clip.

In fact, call volume is running at 1.4 times the intraday average today, and GM's January 2015 31-strike call has seen the most action. Almost three-quarters of the 6,581 contracts traded here have done so on the ask side, and implied volatility is up 5.3 percentage points, indicating new positions are being purchased.

Based on GM's present perch, these calls are in the money. However, breakeven for today's call buyers is $33.36 (strike plus the volume-weighted average price of $2.36). Gains will accrue north of here, while losses are limited to the initial premium paid, should the stock finish south of the strike at the close on Friday, Jan. 16 -- when the back-month series expires.

As touched upon, today's faster-than-usual call volume just echoes the withstanding trend seen in GM's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the equity's 50-day call/put volume ratio of 2.39 ranks higher than 81% of similar readings taken in the past year. Should General Motors Company (NYSE:GM) continue to struggle on the charts, an unwinding of these bullish bets could translate into a fresh wave of selling pressure.


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