Automaker General Motors (GM) is down about 7 percent over the past year, and shares appear to be at the low end of a trading range before the stock pops higher. One trader is betting on such a rally in the coming months.
That’s based on the August $42 calls. With 84 days until expiration, 9,011 contracts traded compared to a prior open interest of 150, for a 60-fold rise in volume. The buyer paid $0.15 to make the trade.
Shares recently traded for just over $32, so they’d need to rise $10, or by nearly one-third, for the option to move in-the-money. With a 52-week high of $43.63, such a move is possible, but just barely.
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The automaker has had a mixed year. Revenues are up 11 percent, but higher costs led to a 19 percent drop in earnings. Shares trade at just two-thirds of their book value, and at about 5 times earnings.
Action to take: Shares look inexpensive here, and are at a price point where they’ve tended to rally strongly over the past year before coming back down again. Interested long-term investors should look to buy a stake at current prices and take some profits on any quick jump higher.
For traders, the August calls are unlikely to move in-the-money, but are inexpensive enough to deliver triple-digit gains on a pop higher in the next few months. Traders should look to take quick profits on a big move higher for shares.
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.