General Motors (NYSE: GM) has been in the news lately … which is a good thing for investors selling options.
Yes, we like the clever GMC truck holiday commercials.
But recently the company announced it would close five North American plants, discontinue several less profitable passenger-car lines and cut 14,000 jobs. Wall Street cheered the plan, as it will allow the company to cut costs and focus on higher-profit-margin vehicles.
The shares popped the day after the news, but the stock sold-off following President Donald Trump’s threats to retaliate by cutting federal subsidies the company receives.
The hypocrisy of trying to punish GM for adapting to the new reality of tariffs and still turn a profit is laughable. Cutting subsidies would likely require legislation anyway. What’s more, they are not important to GM’s bottom line.
The GM Trade
The stock was extremely undervalued based historical standards. So we decided to take advantage of the heightened volatility. We sold the GM December (12/7) 36 put option for $0.98 or $98 per contract on November 28th.
A few days later the administration tried to downplay its threats to GM and the stock ran-up. When a stock runs that fast and the option price falls that hard, it’s time to exit. We closed the trade buying back our GM put for $0.03.
That trade cleared $95 per contract … a nice 2.7% return in just 5 days.
While GM stock sold off over 10% during the worst December in the stock market since the Great Depression, the lesson here is take the profits off the table when they hand it to you.
GM. “I love it.”
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About The Author
Michael Shulman is a 30 Year Veteran of the financial markets – as a trader, a financial analyst, a financial writer and most recently as an educator.
Mr. Shulman made his first option trade in 1985 – COMPAQ Computer calls – a position that expired worthless. His second trade broke even; the third brought him a year’s salary, a near twenty to one return on his investment. He entered the financial publishing business formally in 2001 as director of research for ChangeWave Research’s institutional research business. He also was the senior writer and editor of Hedge Fund Investing.
Michael has published two books – Sell Short and Made in America – both of which can be found on Amazon.com, and he is a frequent contributor to reputable financial sites like Seeking Alpha, MSN, MainStreetInvestor, and Traders Reserve.
Selling Options Expert
Since 2010, he has dedicated himself to teaching investors how to get more income from their portfolios using simple yet safe options selling strategies which produce income every week. This approach was developed from the ground up in Mr. Shulman’s own accounts. His goal to develop a strategy that cannot be replicated by institutional investors of any size and therefore independent of fads and trends that change too often to provide a consistent approach for individual traders.
His trade recommendations in his Options Income Blueprint, Perpetual Income Portfolio Club and Income Masters services maintain a 98% success ratio producing the expected income 98% of the time. No one’s perfect.