General Motors Company: Test Drive GM Stock Now!

An image of a smartphone and a pen
Credit: Shutterstock photo

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Is it time to back up the truck in General Motors Company (NYSE: GM )? If you are optimistic shares can plow ahead, selecting a spread package over the standard GM stock option is looking like the right mix of traction and protection. Let me explain.

General Motors Company: Test Drive GM Stock Now!

Given 16 straight years of failing to turn a profit across the pond, the news was welcome if we're to take the market's reaction to the report at face value. Personally, I'm not married to the story, but I don't think GM stock is either.

GM stock is having a great week. Shares are up 5.3% compared to the S&P 500's 1.4% gain. The outperformance is tied to reports of a potential sale of General Motor's European Peugeot unit to French-based PSA.

Truth is, potential divestitures like a sale of Peugeot have more of a history of not fulfilling the initial promise or at least not in a timely manner. What I'm more optimistic about is the story's ability to jump-start GM stock as a value play long overdue for a bit of respect off and on the price chart.

Bottom line, GM stock continues to do a great job of driving new product and innovation into the market. General Motors also trades at an attractive and discount price multiple and even delivered upwardly revised, above views guidance for 2017 earlier this month. So, what's not to like?

Bearish prognosticators are likely to point at the possibility of peak auto sales and potential trade headwinds. But let's be realistic, those concerns are far from written in stone. Further, other catalysts such as tax or industry deregulation relief or even a weaker U.S. dollar (yes, hearsay!) could always counter potential drags for GM stock.

And if we're to trust the price chart to steer our decision; I'd say it's time to buckle up and test drive GM stock.

GM Stock Weekly Chart

Click to Enlarge The chart of GM stock isn't one that embodies the ability to turbo-drive one's portfolio. Shares are up roughly 10%, sans dividends, since the company reintroduced itself to investors back in 2010.

The upside of General Motors perpetual languishing relative weakness is a rather large three-year long corrective saucer or cup-shaped base that appears readying for a move higher.

Since breaking out above trendline resistance in November, GM stock has improved the bullish formation's chances of an eventual breakout to new highs by establishing a flat base that's found support from the 62% retracement level.

Much like General Motors off the price chart, it's not picture perfect for bulls. Weekly stochastics haven't yet confirmed our optimism. And if we were to show the daily GM stock chart, the flat base looks a bit more ominous as it takes on the shape of a head and shoulders pattern.

I'm not entirely confident in a longer-term buy and hold of GM stock. Nevertheless, in an imperfect world and with enough supports trumping the negatives, that doesn't preclude selecting one of GM stock's shorter-term, low-cost spread packages for a test drive.

GM Stock Bullish Butterfly Strategy

Reviewing GM stock's options board, a bullishly-placed March $37/$38/$39 call butterfly is attractive. Priced for 18 cents with GM stock at $36.72, risk for the one month holding period amounts to 50 basis points while offering a nice expiration profit range from $37.19 to $38.81.

Above and below the outer $39 and $37 call strikes, the full 18 cents will be lost, but given the discussed bullish and bearish drivers it is viewed as an acceptable risk.

The sweet spot for maximizing this spread's return is if GM were to finish at $38 on expiration. Were that to occur, the embedded bull call vertical would be worth $1.00, while the higher bear call spread would expire worthless. Minus the 18 cents paid for the butterfly, a profit of 82 cents or return of 455% is possible.

Disclosure: Investment accounts under Christopher Tyler's management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT .

The post General Motors Company: Test Drive GM Stock Now! appeared first on InvestorPlace .

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

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

In This Story


Other Topics


Latest Markets Videos


    InvestorPlace is one of America’s largest, longest-standing independent financial research firms. Started over 40 years ago by a business visionary named Tom Phillips, we publish detailed research and recommendations for self-directed investors, financial advisors and money managers.

    Learn More