By John Critchley
Apparently some trader believes the turnaround story in GM is about to hit the skids, reverse course or run out of gas. Our tracking systems detected the purchase of about 36,000 September 26 puts for $0.50 against open interest of 36,057 contracts. The implied volatility of the option trade was nearly 37.3%. This is not far away from the 52-week implied volatility high of 43.08 % hit in late February and nearly 13% higher than the December 21 implied volatility low of 24%. The heightened implied volatility is indicating that there is some bearish sentiment in the option marketplace towards GM. The trade accounted for almost all the options activity in the automaker so far today.
There are three possible catalysts for this large trade:
- A large instituional owner of the underlying is protecting his position in GM against some unexpected downard move. This protection expires in mid-Septmember and protects the buyer through any car-buying downturrn in the summer months.
- A speculator believes that the turnaround in GM is a charade and is banking on the automaker's stock dropping over 20% between now and September expiration.
- The nearly identical size of the trade to the current open interest numbers may indicate that this is a closing transaction and the position is being closed before earnings.
On Tuesday, GM said April sales rose by over 25% led by sales of its smaller more fuel-efficient cars.
GM's stock has risen 11.8% since mid-April, when it traded at a post-IPO low price of $29. In trading Wednesday, shares were slipping $0.20 to $32.81. That's perilously close to the $33 IPO price and not far from the $35 opening price on Nov. 18, the first day of trading.
Analysts surveyed by Thomson Reuters are expecting earnings of 91 cents a share on revenue of $35.6 billion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.