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GM Jun 1 puts


Guest kawikaho
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Guest kawikaho

Hi folks,

 

I'm wondering what others think about GMRV puts.  The strike price is 1, and the asking price is around .33.  The risk is 100% of lost capital, the reward, at most, will be 200% (I believe).

 

Any thoughts?

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Kawikaho,

 

I think that there is an opportunity here, but the exact opposite of what I believe you are thinking: writing these puts.

 

While I agree that GM shares are essentially worthless and I was previously short the stock, I don't believe that they will trade right to $0 following the June 1 restructuring deadline imposed by the U.S. government.

 

If you look at other companies that have worthless stocks that have essentially been taken over by the U.S. gov't: FRE, FNM and AIG, they are all trading in the $1 range. And this has been going on for a long time since their "default event". So considering this weird phenomenon, the time that it will take for GM to get a reasonable restructuring plan together and the slim possibility for GM shares to recover, I would not buy these puts.

 

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I dont know if yours is a true question or rhetorical but what happened to Chrysler is what I thought would happen. I wrote about it in a thread months ago.

 

About the writing the calls - I would be talking about some short term close to money but they arent paying enough to convince me.

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Guest kawikaho

I wasn't being facetious.  So, you would go long GM?  Why?  I think it's definitely risky to short the common because any last minute financing deal will cause the stock to explode and kill the shorts, but I don't think GM is going to make it.  Why do you?

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writing the calls is actually opposite buying the calls.  Yes, its like the shorting but you make if the stock goes nowhere (which I think it will do at best), you get the premium unlike shorting where you are "supposed" to pay interest.

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Guest kawikaho

Ahhh... ok, i'm pretty new to options.  That makes sense.  You get paid to write the call options by selling them to people who think the stock will go up.  However, if you don't think that will happen, then you make out by not having to make due on the contract.  But, what if the stock does go up drastically, and the calls are reined in?  Don't you lose out at that point?

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  • 2 weeks later...
Guest kawikaho

Yep, I bought the puts.  Puts are up almost 40% since I bought them.  Looks like all the execs are selling out.  GM is going for bankruptcy.  I wonder what sort of implications that will have for the economy. 

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I dont think it will have as much as the fear mongers were trying to achieve.

 

The hard assets/trademarks etc will prob be allowed to continue along their course with ownership changing hands.

 

Its basically skimming along the ocean floor here with respect to most aspects of the buisness so the ripple, I believe is not going to be anything like the sunami we saw over the last 6 months.

 

The continuation of the housing debacle and credit market will be more of a  catalyst.

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Guest kawikaho

Thanks for the response.  BTW, what happens to the value of the puts if GM goes into Ch. 11?  Right now, the value of those puts are up 60%.  I'm thinking about just selling them.

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