The Small Trader

GM: Trading on Bankruptcy Expectations

This is the typical case where unexpected factors can kill a good idea.

The author analysis was correct, GM finally filed Chapter 11, but at the end there were too many June puts open. This was a great incentive to MMs to manipulate the stock price and drive it above $1 untl expiration. It is aroung $1.60 right now, and it looks that June $1 puts will expire worthless.

The right move would have been to buy Jul $1 puts. The bankrup procedure schedule probably will stop trading 6/24. Jun puts expires on 6/19, so they'll become worthess just for 4 days. The perfect move would have been a calendar spread, buying Jul puts and selling Jun puts.

I am losing some money with this trade, althought I bet properly for the bankrup.