Trade Postmortem: General Motors Company (GM)

Breaking down our winning options trade on General Motors Company (GM)

Dec 14, 2016 at 1:30 PM
facebook twitter linkedin


Our recommended General Motors Company (NYSE:GM) March 17, 2017 32-strike call just delivered a 100% winner for subscribers of our Weekend Trader service. Below, we'll look back at what made the trade so attractive, and how GM stock performed following our recommendation.

General Motors shares were in an excellent position in late November, when we made the recommendation. The stock had just broken through the $33 level, which coincided with its post-bankruptcy initial public offering (IPO) price, and had served as resistance on numerous occasions, confirming the area's significance. In addition, GM was a hair above its year-to-date breakeven mark -- not to mention the $32.89 level, which translated into a round-number market capitalization of $50 billion -- and had also taken out a trendline connecting a series of lower highs since the first quarter of 2015.

Amid a technical breakout that we deemed important and likely not on the radar of many chart-based traders, we observed sentiment on the stock that led us to believe there was still a decent amount of caution that could translate into buying power. For example, options traders had been buying GM puts over calls at a near-extreme rate, analysts were largely skeptical, and short interest was considerable. In other words, there was a contrarian opportunity, in that a move higher in the shares could trigger a capitulation among the skeptics, potentially resulting in tailwinds.

After our subscribers received the trade recommendation on Nov. 27 and entered the position on the morning of Nov. 28, GM wasted no time in rallying. In fact, the stock soared 5.5% on Dec. 1, after the automaker reported a 10.2% increase in U.S. vehicle sales for November, bolstered by a bullish "outperform" initiation at Macquarie. What's more, the shares hit an annual high on that day, and continued to do so in ensuing sessions.

Last Friday, less than two full weeks after Weekend Trader subscribers entered the position, our recommended call reached its target profit of 100%. Below is a chart showing General Motors Company's (NYSE:GM) performance in the months leading up to our recommendation, and its meteoric rise in the days that followed.

gm daily dec 13


Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

Trader: Sell These 8 Stocks in 2021

1633101108

 




 
Special Offers from Schaeffer's Trading Partners