GM Analysis

Tim Bovee7 Comments

General Motors Co. (GM)

Update 3/6/2017: GM gapped higher after earnings were published, entering unprofitable territory, and remained thee until today, when a sharp morning drop combined with time decay as expiration approached allowed me to exit for a below-target profit, at 11.6% of maximum potential yield. My target was 25%.

Shares rose by 3.6% over28 days, or a +43% annual rate. The options position produced a +13.13% yield on debit for a +399% annual rate

 

GM publishes earnings on Tuesday before the opening bell.

I shall use the MAR series of options, which trades for the last time 39 days hence, on March 17.

Implied volatility stands at 29%, which is 2.6 times the VIX, a measure of the volatility of the S&P 500 index.

GM’s IV stands in the 29th percentile of its annual range and the 67th percentile of its most recent broad movement.

The price used for analysis was $36.47.

Premium: $2.24 MAR iron fly
GM   Odds Delta
Calls
Long 40.00 88.3% 13
Break-even 38.24
Short 36.00 46.8% 57
Puts
Short 36.00 53.0% 43
Break-even 33.76
Long 32.00 87.8% 10

The premium is 56% of the width of the position’s wings.

The risk/reward ratio is 0.8:1.

Decision for My Account

I entered a position on GM as described above. The stock at the time of entry was priced at $36.55.

By Tim Bovee, Portland, Oregon, Feb. 6, 2017

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