GM – PUT Option

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At the time of this writing GM is trading at approximately $31 per share. With a dividend of $0.36 per share per quarter the annual return comes to over 4.6%. This is quite an attractive payout and almost enough justification within itself for acquiring a long position in the stock.

However, we are past the ex-dividend date and would not be able to take advantage of this dividend for another quarter.

We quickly looked at the prospect of a PUT option position.  We want the position, why not possibly acquire at a lower price?  The 30 strike September expiration (this Friday) contract is selling for $0.14.  Here’s the set up (minus commissions):

set up for GM PUT

On an APY basis (not that we can do this trade every three days) this comes out as a 57% return on the capital required.

Worst case scenario, the stock drops from its price of $31 through our strike of 30.  We then take the shares on as a holding in our portfolio.  An asteroid hits Detroit, GM headquarters and proper is wiped off the face of the planet, and then the stock drops to single digits.  Will that happen between today and Friday?  Let me say with most statistical assuredness… NOPE!

Here’s the pretty chart for GM:

GM _ 2015.09.15

*Charts from Trade Architect™


Disclaimer: The information presented does not consider your personal investment objectives and should not be taken as a recommendation. Further, it shall not be construed as an offer to sell or a solicitation to buy any security mentioned. The risk of loss in any stock, option, or futures trade can be substantial. Consider all relevant risk factors before trading.

 

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