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GM Options Flow Suggests Confidence in Shares

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General Motors' (GM) woes continue. The stock is down 0.9% to $34.43 early Monday after the automaker said it was recalling 824,000 vehicles in the US. The news is the latest in a string of recent recalls that have been weighing on the share price in 2014. The stock is now down 15% year-to-date. Yet, despite the negative headlines and weakness in shares, the order flow in GM seemed decidedly bullish throughout much of last week and the increased options activity comes ahead of several potential catalysts.

One player opened a hefty September 30 39 risk-reversal on the automaker Friday. With the stock up $0.22 to $34.73, the investor sold 10,000 September 30 puts on GM at $1.01 to buy 10,000 September 39 calls for $1.02. The bullish combo, for $0.01, is a new position, according to today's open interest numbers. If so, the investor is stating that they are willing to buy (have put) the shares for $30 if GM falls below the 30-strike through the September expiration. The Sep 39 calls offer upside exposure if the stock rallies instead.



Similar activity surfaced Wednesday and Thursday, but in January 2015 options. The Jan 30 40 bullish risk-reversal was bought on GM for $0.50, 10,000X Thursday and at $0.38, 15,000X Wednesday. Meanwhile, June 35 calls were among the most actives in GM Monday and Tuesday. The flow over those two days created 20,500 contracts of new open interest at that strike. OI in the June 35 calls is now 126,713 and the second largest block in GM options (behind the Jan 40 calls, which have 131,655 in open interest).

The automakers release monthly auto sales figures tomorrow and GM faces a panel hearing before Congress on Wednesday. The company will report earnings on April 24. Clearly, the stock has been a laggard in 2014 due partly to anxiety about the recent recalls and worries that another shoe might drop. However, GM is up 26% from a year ago and the positioning in the options in the stock last week, especially those June 35 calls buyers and opening bullish risk-reversals, seems to be expressing confidence in the name for the rest of 2014.

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At the time of publication, Henry Schwartz held no positions in the stocks or issues mentioned.


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