Friday, August 15, 2008

Falling Oil, Call Option Volume GM (8/11)

GM 1 Year Chart (

I saw a lot of bullish call buying in the GM options On Monday morning (8/11/08, with oil hitting fresh new lows and right before Rick Wagoner, chairman and CEO came out and said "the worst may be over for the beleaguered carmaker, in terms of US job cuts, retiree healthcare costs and pension problems", the August $10.00 calls were seeing thousands of contracts being bid up, and eventually volume picked up in the $11.00 strike in the thousands. The stock was at $10.20 when this was going on and it hit a high of $11.75 today before pulling back.

The chart looks very interesting. It seems that a double bottom COULD be forming, with the increasing relative strength index knocking up against 50 along with a MACD right along the 0 line (which could break out confirming an uptrend). GM is also in a long term downward trend and could knock up against it's upper channel and the 50 day moving average (12.29). This week option sentiment activity moved directly with oil fluctuations and GM announcements, which were mainly bullish this week, and the 30 Day Volatility Index (chart below, courtesy of hit a previous mid July low of 89 as of today's close. GM hit a week high of $11.88 today before pulling back to a $11.18 close. News about a potential asset sale are also in play and could be a potential trading opportunity. Also, oil's direction is key to the movement of GM. It could break out to the upside from here which would bring in massive bearish sentiment to GM and the autos, or oil could resume it's downtrend and GM implied volatility could break down further as investors stay content with the long GM trade. We shall see what happens.

GM Volatilities (

USO (Oil ETF) Chart (