Unusual Options Activity: General Motors (GM)

Shares of General Motors (GM) are near a 52-week low thanks to high inflation, supply chain shortages impacting auto production, and the view of a slowing economy. One trader is betting on a rebound in the coming weeks.

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  • That’s based on the June $42 calls. With 65 days until expiration, 24,263 contracts traded hands, a 144-fold surge in volume compared to the prior open interest of 169. The buyer of the calls paid $2.32 to get into the trade.

    Shares recently traded just over $40, so they would need to move less than 5 percent higher for the options to move in-the-money. The stock is down nearly 40 percent from its 52-week high.

    Even with industry headwinds, revenue at the company only dropped 10 percent in the past year. GM is still profitable, and even trades right at book value, at half its price-to-sales, and at 6 times current and forward earnings.

    Action to take: Shares look like a value play at current prices. The company’s growth in electric vehicle development should also lead to higher growth in time as well. Investors may like shares here, although the stock hasn’t paid a dividend since early 2020.

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  • For traders, the June $42 calls are well timed and positioned for a short-term rebound in shares. The options are also cheap enough that a rally could lead to high-double-digit returns.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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