Option Bulls Can't Quit General Motors Company (GM)

General Motors Company call options are trading at an accelerated clip

Dec 24, 2014 at 10:46 AM
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General Motors Company (NYSE:GM) is being a proverbial Scrooge this morning, sitting out the broad-market trend higher. The stock was last seen 0.5% lower at $33.40, bringing its 2014 deficit to 18.3%. Nevertheless, option traders remain eternally optimistic, with calls trading at almost twice the typical intraday rate.

Roughly 14,000 GM calls have changed hands, compared to fewer than 1,100 puts. Most active are the January 2015, February, and March 35-strike calls, where a healthy portion of the contracts were seemingly bought to open. By purchasing the calls to open, the buyers expect GM to climb back atop $35 within the options' respective lifetimes.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the automaker's 10-day call/put volume ratio of 2.78 stands higher than 90% of all other readings from the past year. In other words, GM option buyers have picked up calls over puts at a much faster-than-usual clip during the past two weeks.

However, this bullish bias seems unwarranted. On the charts, GM has struggled during the past year, with rebound attempts stymied by its 10-month moving average -- a trendline that hasn't been conquered on a monthly closing basis since January. Off the charts, compensation claims related to faulty ignition switches continue to climb, and the impact of the ruble-related suspension of sales in Russia has yet to be seen.

Monthly Chart of GM since August 2013 with 10-Month Moving Average

Should General Motors Company (NYSE:GM) continue to struggle both technically and fundamentally, an unwinding of optimism in the options pits could exacerbate selling pressure on the shares. Likewise, seven out of 13 analysts maintain "buy" or better opinions, and the average 12-month price target of $40 sits in territory not charted in nearly a year. A wave of downgrades and/or price-target reductions could also pressure GM lower.


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