GM Analysis

General Motors Co. (GM)

Update 10/24/2017: GM’s earnings came in at $1.32 per share,  beating the Street consensus of $1.19. The share price rose by about $2 from the close in overnight trading and retraced about half of the rise by the opening bell.

Zacks had given GM an earnings surprise prediction score of 3.14. The $1.42 price movement during the life of my position exceeded both the average and the central tendency of the past four post-earns moves.

Shares rose by 3.1% over my one-day holding period, or a +1,144% annual rate. The options position produced a +96.2% return for a +35,096% annual rate.


GM publishes earnings on Tuesday before the opening bell.

I shall use options that trade for the last time 25 days hence, on Nov. 17.

Implied volatility stands at 25%, which is 2.4 times the VIX, a measure of the volatility of the S&P 500 index.

GM’s IV stands in the 52nd percentile of its annual range and the 82nd percentile of its most recent broad movement.

The price used for analysis was $45.24.

Because analysts have been tending to increase their earnings estimates for GM, Zacks is predicting an earnings surprise. Therefore, I have structured the trade as a bull put vertical spread, providing a limited profit zone to the downside but an infinite zone to the upside. As is my practice with verticals, I have moved my options series out a few weeks to give more time before expiration.

Premium: $0.51 Expire OTM
GM-vertial Strike Odds Delta
Puts
Long 42.50 82.0% 16
Break-even 45.01
Short 44.50 66.0% 32

The premium is 25.5% of the width of the position’s wings.

The risk/reward ratio is 2.9:1.

The zone of profit in the proposed trade covers a $# move either way. The biggest immediate move after each of the past four earnings announcements was $#, and the average was $#. After eliminating the maximum and minimum post-earnings movements, the central tendency is $#.

The expected move covering 85% of occurrences is $0, within? /the profit zone.

The bid/ask spread is 1.9%.

Decision for My Account

I have entered a position on GM as described above. The stock at the time of entry was priced at $45.31.

By Tim Bovee, Portland, Oregon, October 23, 2017

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

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