Automaker General Motors (GM) is up 45% over the past year thanks to strong growth even as higher interest rates have weighed on car sales. One trader sees a pullback in the weeks ahead.
That’s based on the September 20 $47.50 puts. With 22 days until expiration, 10,897 contracts traded compared to a prior open interest of 248, for a 30-fold rise in volume on the trade. The buyer of the puts paid $0.60 to make the bearish bet.
General Motors shares recently traded for about $49. Shares would need to drop by about $1.50, or about 3%, for the option to move in-the-money.
GM shares are right near their 52-week high of $50.50, set back in July before a moderate selloff.
Earnings are up nearly 15% over the past year, and revenues are up by 7%. But GM shares are still inexpensive, trading at about 5 times current and forward earnings.
Action to take: Shares can likely continue to trend higher in time, but the stock is looking overbought in the very short term following a strong rally over the past few weeks. Interested traders can likely buy in the mid-$40 range at some point in the coming few weeks.
At current prices, GM pays a dividend of about 1%.
For traders, the September $47.50 puts play well to a potential market pullback in the coming weeks, and for shares to come off of their overbought conditions. Given the price of the option, traders can likely see mid-double-digit returns at some point before expiration.
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 company mentioned in this article.