General Motors Co. (GM)
Update 4/28/2017: GM gapped higher at the opening bell after earnings were published and then declined sharply, ending up near its closing price the day before. I exited my position at 25% of maximum potential profit.
Shares showed at net rise of 1.0% over one day, or a +346% annual rate. The options position produced a 33.3% yield on debit for a +40,758% annual rate.
GM publishes earnings on Friday before the opening bell.
I shall use the series of weekly options that trade for the last time eight days hence, on May 5.
Implied volatility stands at 26%, which is 2.4 times the VIX, a measure of the volatility of the S&P 500 index.
GM’s IV stands in the 46th percentile of its annual range and the 66th percentile of its most recent broad movement.
The price used for analysis was $34.27.
Premium: | $1.16 | Expire OTM | |
GM-iron fly | Strike | Odds | Delta |
Calls | |||
Long | 36.50 | 90.4% | 11 |
Break-even | 35.66 | ||
Short | 34.50 | 57.6% | 44 |
Puts | |||
Short | 34.50 | 41.9% | 56 |
Break-even | 33.16 | ||
Long | 32.00 | 88.9% | 10 |
The premium is 52% of the width of the position’s wings.
The risk/reward ratio is 1.2:1.
Decision for My Account
I have entered a position on GM as described above. The stock at the time of entry was priced at $34.25.
By Tim Bovee, Portland, Oregon, April 27, 2017
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