General Motors Options Hot on Honda, SoftBank Stakes

GM put buyers have been busier than usual in recent weeks

Oct 3, 2018 at 2:41 PM
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General Motors Company (NYSE:GM) is popping today, on news Honda Motor and SoftBank have taken stakes of 5.7% and 10%, respectively, in the Detroit automaker's self-driving vehicle division, Cruise. GM stock was last seen up 3.2% at $34.38 -- erasing yesterday's monthly sales-related loss -- and one bullish options trader is climbing on for the long haul.

At last check, around 61,000 calls and 18,000 puts have changed hands on GM -- more than two times what's typically seen, and call volume pacing in the 90th annual percentile. Most active are the January 2020 45- and 55-strike calls, where Trade-Alert indicates a long call spread was initiated for an initial net debit of $1.00.

If this is the case, the goal is for GM stock to rally right up to $55 by January 2020 options expiration -- a 60% premium to current trading levels. This will allow the trader to pocket the maximum potential reward of $9 per spread (difference between the two strikes less the net debit). Risk, meanwhile, is limited to the initial net debit, should General Motors settle below $45 at expiration.

More broadly speaking, it's been put buyers who have been more active than usual in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GM's 10-day put/call volume ratio of 0.44 ranks in the 73rd annual percentile, so while the number of calls bought to open has exceeded puts, the rate of put buying has been accelerated.

Drilling down, the October 36 put has seen the biggest rise in open interest over this two-week time frame, with nearly 19,000 contracts added. Data from Trade-Alert indicates the bulk of this activity occurred back on Sept. 19, when one speculator rolled their long September 38 puts out and down.

Looking at the charts, General Motors stock has struggled since its most recent high near $45 in June. The shares tagged an annual low of $33.21 just yesterday, after the automaker said third-quarter vehicle sales fell 11.1%. What's more, today's pop is being contained by familiar resistance at the security's 30-day moving average and a key Fibonacci level.

 GM stock daily chart oct 3


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