Automobile manufacturer General Motors (GM) has been rangebound over the past year, and shares appear to be trending down once again. One trader is betting shares will further decline from here in the coming weeks.
That’s based on the August 18 $35.50 puts. With 22 days until expiration, 5,802 contracts traded compared to a prior open interest of 129, for a 45-fold rise in volume on the trade. The buyer of the puts paid $0.31 to make the bearish bet.
Shares recently traded near $38, so they would need to drop about $2.50, or about 7 percent, for the option to move in-the-money. The strike price is well over the stock’s 52-week low of $31.10.
General Motors trades at just 6 times earnings, and is going for below book value, making it a value play in the automotive sector. Concerns over slowing vehicle sales may weigh on shares in the short term.
Action to take: With shares trading in a rangebound way, investors may want to wait for the stock to stop its current downtrend before buying in. Shares yield just under 1 percent right now, but patient investors could get a higher yield with a bit of patience.
For traders, the August puts play well to the stock’s rangebound nature. And they’re inexpensive enough to deliver mid-to-high double-digit yields in the days ahead.
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.