General Motors Company (GM) Stock Can Turn Fear Into Income

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GM stock - General Motors Company (GM) Stock Can Turn Fear Into Income

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It’s been a while since I shared a trade on General Motors Company (NYSE:GM), which started 2017 with great promise but instead fizzled, especially over the past three months. GM stock has fallen about 15% from its highs since March, and now it’s struggling to find footing at a long term pivotal zone.

I believe in balance, and the idea that markets usually overshoot on the way up and down. Thus, any time I see a worthy company achieving balance I get interested in trading it.

This works well when selling premium against a range of prices. I don’t need to catch a rally. All I need is to find support levels that are likely to hold up through my holding period.

Technically, the fall in GM stock brings it to about the middle of its four-year trading range. General Motors has seen just as much action above $33 per share as it has below it. I’ve read reports foretelling of more pain ahead in GM all the way down to $29. I don’t necessarily agree, but I do need to account for the possibility.

Fundamentally, the analysts are polarized into fans or haters at these levels. So the push-pull situation could create a stalemate that is perfect for a premium seller like me. Usually I would sell an iron condor for income, but today I will only commit to the long side.

GM stock chart view 1
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It is important to recognize a technical danger in GM stock, though. If the price breaks down from here, it could invite heavy technical selling.

I’ll note that my trade setup isn’t a claim that General Motors shares will rally from here. I don’t structure trades that chase price targets. Instead, I profit from targets that won’t come. I am confident selling risk below levels that I deem safe to own the stock.

How to Trade GM Stock

The trade: Since I am willing to own General Motors at $30.50 per share, I will sell that 7 Jul $30.50 put and collect 35 cents per contract. To win, I need GM to stay above my strike price, otherwise I will own shares and suffer losses below $30.15.

If I am unable to own the stock, I could use spreads instead. There I would have much more limited risk to lessen the impact of the worst-case scenario.

The alternate: Sell the 7 Jul $30.50/$29.50 credit put spread, where I have about the same chance of success but with a more limited risk. Yet if successful, the spread will yield 14% on risk. Compare that to buying GM stock outright and needing it to rally 14% to match the performance of the spread.

Selling options is risky business, so only risk money you can afford to lose.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/general-motors-company-gm-stock-can-turn-fear-into-income/.

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