General Motors Company (GM), Trending Stock Report

General Motors Company (GM) is obviously trending in the news after the company announced earnings yesterday. While the company beat estimates, the stock is down after halting its Cruise autonomous driving division and disappointing performance from its China division.

When we began looking at factors from an options trader’s perspective, we noticed that the implied volatility for September 20^th options expiration is unusually low. Knowing that September tends to be a period of increased volatility for the market, we started looking into the seasonality of GM options in past years from July 22^nd, to September 20^th. As you can see in the chart below, there is a pattern. The probability cones show that over the last 4 years the stock made bigger moves from July to September than current options prices expect. That is good news for option buyers.

This Volatility Term Structure for GM shows us the implied volatility of the at-the-money options for the September 20^th expiration are low relative to all other expirations. To learn more about Volatility Term Structure, click here. This is especially interesting because the month of September tends to be a month of increasing volatility for the market as a whole. This chart prompted us to look into the seasonality of GM going into September.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of GM’s stock price over the past 4 years. You can see that the actual behavior (the blue histogram) shows us that GM made big moves more frequently than the modeled options prices expect. This is good news for option buyers.

This Volatility Cone shows us that the volatility expectations (the yellow dots) are all below the 4-year historical volatility average. To learn more about the Volatility Cone, click here. This confirms that GM options are all relatively inexpensive. The 2-month period is closer to the extremely low volatility (the lower purple line) than the 4-year average.

GM’s option prices for the September 20th expiration are unusually low while the stock has a seasonal pattern of making big moves late summer into early fall. This sets up an opportunity for a neutral option buying strategy.

To get the details on today’s trade, be sure to read today’s ODDS Online Daily Option Trade Idea.