Shares of carmaker General Motors (GM) have shed over one-third of their value in the past year. One trader sees the possibility for a further decline.
That’s based on the July 8 $38 puts. With 37 days until expiration, 10,003 contracts traded compared to a prior open interest of 100, for a 100-fold increase in volume on the trade. The buyer of the puts paid $1.89 to make the trade.
Shares last traded around $38.50, meaning that these options are already about $0.50 in-the-money. The stock has just recently bounced off its 52-week low just over $34 per share.
While the carmaker has seen shares drop in the past year, revenue has held up well with an 11 percent increase. However, earnings have dropped. And the company has had to repeatedly shut down operations due to supply chain constraints, which could continue to play out over the next few months.
Action to take: Investors taking a long-term view may like shares here. The stock trades at about 5 times forward earnings. And the current supply chain issues underway are unlikely to last forever. Weighed against stock ownership is the fact that shares don’t pay a dividend.
For traders, the puts look reasonably priced, especially for already being in-the-money. And following the stock’s recent strong rally, a pullback in the next few trading sessions could lead to mid-double-digit gain returns on the July puts.
Disclosure: The author of this article has no position in the company mentioned here, and does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.