Markets

Bulls take the driver's seat in GM

General Motors has been breaking out amid strong auto sales, and bulls piled into the name yesterday.

optionMONSTER's Heat Seeker program tracked a flood of activity in GM, with more than 530,000 contracts changing hands by the closing bell. That was 15 times average volume and made General Motors the second-busiest company in the option market behind only Apple. It normally doesn't even make the top 10.

Short-term trades were the first to stand out, with the Weekly 36 calls expiring this Friday purchased for $0.07 to $0.22. The Weekly 37.50s expiring on June 27 also hit for $0.19 to $0.22.

Long calls lock in the price where the auto maker's stock can be purchased, letting investors cheaply position for a move higher. The contracts can also generate significant leverage if shares move in the right direction, which is precisely what happened yesterday . (See our Education section)

GM was up less than 2 percent at the time but continued to push higher and ended the session up by 3.57 percent at $36.52. The Weekly 36 calls inflated to as much as $0.90, and the Weekly 37.50s more than doubled to $0.46 in the thick of the action.

In another major transaction, an investor bought 33,692 September 39 calls and sold an equal number of September 42s for a net cost of $0.64. That bullish call spread will earn profit of more than percent if the stock runs back to its December peak near $42 by expiration. Another 18,000 of the September 39s were bought outright throughout the day.

(A version of this post appeared on InsideOptions Pro yesterday.)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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