Credit Spread - GM
Written on April 26, 2007 by OptionsRopeaDope
GM has gone nowhere in a very long time… over the last 180 trading days or so it has not fallen below 29, and since February it has pretty much stayed in the 30-32.50 range. And yet the option premiums are very inflated. With 3 weeks and a day to expiration May 30 puts AND the 32.50 calls are both at .7. Definitely an opportunity here….
A couple of days ago the 25-27.50 put spread was at .3 - an over 10% return assuming GM doesn’t drop over 10% in the next 3 weeks (and given that the stock has swallowed the news that Toyota overtook them in worldwide sales I find that unlikely). Now the spread is half that, but the 27.50-30 put spread is at .5.
I made a nice profit on an April Straddle on the 30-32.50 strikes, and I think that the stock is handling negative news very well, with strong resistance at 30. So I’m opening up a put credit spread for .5 at 27.50-30, 60 contracts on each side, for a 20% profit in 3 weeks if things go as planned.
I’d open an Iron Condor with calls at higher strikes, but it just doesn’t make sense right now (namely, the stock seems very resilient right now and may rise quickly.)
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