GM offered a strong profit forecast for 2017, and the stock's new highs have attracted option traders
With the Detroit Auto Show in full swing, General Motors Company (NYSE:GM) took the opportunity to offer a stronger-than-expected profit forecast for 2017, and CEO Mary Barra spoke of "working with the administration that [is] going to make America great again" -- referring to President-elect Donald Trump, who just last week threatened a "big border tax" via Twitter. Against this backdrop, the shares of GM have rocketed to 22-month highs, and the stock's option pits are heating up.
At last check, GM was 3.8% higher at $37.36, after peaking at $38.16 -- territory not charted since early 2015. Per data from the International Securities Exchange (ISE), it looks like some speculators are selling to close their January 2017 38-strike calls -- the most active option so far today, with more than 10,000 contracts exchanged.
Overall, GM calls are trading at three times the average intraday clip, on pace for an annual high, with more than 75,000 contracts traded. Roughly 54,000 GM puts have also changed hands -- two times the norm -- and it looks like one speculator bought to open more than 3,200 weekly 2/24 38.50-strike puts around 1 p.m. ET. The buyer is expecting GM to stage a short-term retreat, and will begin to make money if the stock breaches $36.15 -- the strike minus the $2.35 premium paid -- by the close on Friday, Feb. 24, which encompasses General Motors Company's early February earnings date.
On the charts, GM has advanced more than 23.5% in the past year, and the stock's options pits have been busy. Volume peaked in early December, after a standout November sales report, and total options open interest is now in the 99th percentile of its annual range. Put and call open interest are neck-and-neck -- about 827,000 puts and 830,000 calls outstanding -- but GM's 30-day implied volatility skew fell to 7.4%, just 1 percentage point from an annual low, meaning short-term GM puts have rarely priced in lower volatility expectations relative to GM calls.
There's still plenty of room on General Motors Company's (NYSE:GM) bullish bandwagon, though. Despite the stock's recent rally, not even half the analysts following GM deem it worthy of a "buy" or better rating. A flood of fresh upgrades could help the car stock rev even higher.
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