Trade of the Day: General Motors Company (NYSE:GM)

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The big story this week is earnings season, and the results have painted somewhat of a mixed picture. Some companies are showing good numbers, while others are not. Several stocks have made some significant drops because of their earnings report, and that’s the kind of situation where I look to take advantage of the lower prices with a bullish position.

With the exception of Tesla Motors Inc (NASDAQ:TSLA), the auto stocks are real bargains here. General Motors Company’s (NYSE:GM) price/earnings ratio is about 6:1, and it’s got a great line of cars. It’s probably one of the better auto companies right now, so I figure it provides a good opportunity to write a naked put:

Sell to open the GM Dec. 2nd $29.50 put at about $0.30.

Note: There are several December expirations available for GM options. Be sure you are opening the weekly options that expire on Friday, Dec. 2, 2016.

For those who aren’t familiar with this strategy, the basic premise for a naked put write is to sell (also called “writing”) put options and thereby get income upfront in the form of the option premium.

By selling a naked put, you’re betting against the buyer of that put option, who thinks that the underlying stock is going down. If the buyer is wrong and the stock goes up, the put will expire worthless — so, as long as GM remains above $29.50 through expiration, you (as the seller) would have no other obligation and would simply walk away with 100% of the option premium you collect today.

GM got sold off after a Q3 beat, so with the shares still at $31 after that move lower, I thought those $29.50 puts were pretty attractive and decided to write them at that level. The stock hasn’t gone below that price for a while, so this trade is a high probability play.

Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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