Trade of the Day: General Motors (GM)

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The bears continued their pressure from the prior Friday’s opening pop and drop last week, as the Dow fell triple-digits and the small-caps fell below key support at 1,140 on Monday.

Last Tuesday’s pullback can be blamed on the U.S. airstrikes against Syria in a starting attempt to defeat ISIS, but the bulls held support despite the somber news. The rebound on Wednesday was textbook, as the bulls avoided a possible four-session slide for the first time all year. However, Thursday’s damage made for the worst trading day since late July, as the bears pushed fresh lows for the week.

Friday’s rebound kept a possible trading range intact, but this week promises to be just as volatile. Trading ranges can be difficult to navigate, especially volatile ones, and during a trading range, I’ve found it’s best to use “cheap” options during these types of environments. When a clearer trend develops, I like to trade closer in-the-money options on more expensive stocks, but I normally keep all of my options trades at $1.50 or less.

Today’s recommendation is one such trade, a put-option play on General Motors (GM). Resistance at $33.50 held on Friday, and there is a further hurdle at $34 and the 50-day moving average.

Buy to open the GM Dec. 32 puts (GM141220P00032000) around $0.95; I suggest using a limit order to get the best fill. My exit target is $1.90, for a 100% profit.

Shares appear ready to trade down to $32.50 over the near-term, and I like the trade as long as $34.50 holds. I believe GM could fall below $30 and test $28 in the longer term. If shares trade down to $30 by mid-December, these options will easily double from the entry price, as they will be worth at least $2.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/09/trade-day-general-motors-gm-2/.

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