Puts Hot as General Motors Company (GM) Takes a China-Related Hit

General Motors Company (NYSE:GM) -- which has exposure to China -- is lower today, and option traders are responding in kind

by Karee Venema

Published on Aug 11, 2015 at 3:08 PM
Updated on Jun 24, 2020 at 10:16 AM

surprising currency move by China's central bank is having a ripple effect throughout global markets. On the domestic front, the action has not only sparked a mass exodus in U.S.-listed China-based firms, but also in exporters with exposure to the mainland. General Motors Company (NYSE:GM) is one such name taking a hit on the news, with the stock off 4.2% to trade at $30.61.

The day's bearish bias has prompted an uptick in put activity in GM's options pits, with the contracts crossing at two times the average intraday pace. It appears a number of speculators are gambling on even more downside in the near term, with apparent buy-to-open activity detected at the stock's weekly 8/14 31.50-strike, August 30, and September 31 puts.

If speculators are indeed initiating new long positions here, the goal is for GM to settle south of the strike prices at the respective expiration dates. Delta on the weekly 8/14 31.50-strike put is currently docked at negative 0.85, suggesting an 85% chance of an in-the-money finish at Friday's close. Meanwhile, delta on the August 30 and September 31 puts is perched at negative 0.32 and negative 0.61, respectively.

More broadly speaking, today's accelerated put volume is just more of the same in GM's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 0.49 ranks in the 71st annual percentile. Simply stated, puts have been bought to open over calls at a faster-than-usual clip in recent months.

It's a decidedly different set-up outside of the options pits, though. Of the 13 analysts covering the shares, eight maintain a "buy" or better rating, with not a single "sell" to be found. Plus, the average 12-month price target of $40 stands at a 31% premium to current trading levels, and rests in territory not charted since January 2014. Should GM continue to add to its 12% year-to-date deficit, a round of downgrades and/or price-target cuts could apply additional pressure to GM.

Elsewhere, short interest on General Motors Company (NYSE:GM) declined 19.2% in the two most recent reporting periods -- a time frame in which the stock shed around 12%. For starters, the equity's inability to capitalize on this burst of buying power speaks volumes to its underlying weakness. Plus, it would take less than three sessions to cover GM's remaining shorted shares, at the stock's average daily pace of trading. In other words, there's little sideline cash available to help fuel future rally attempts.

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