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US Treasury Sale Stalls GM's Rally

A large trade of over 3200 June 13 calls was sold shortly after the U.S. Treasury Department released a statement that it will sell 30 million share of the Detroit automaker General Motors. The United Auto Workers will also sell an additional 20 million shares of the Motor City staple, slowing any potential rally on the stock with a total of 50 million shares now on the market. 

Since there are suddenly 50 million new and shares hitting the market, they are expecting the stock to perhaps stay stagnant or slightly increase but certainly not exceed the strike of $36. They will collect the premium from selling the call if the stock stays below $36, , but for that buffer, the seller loses the right to capture any market rally above $36.

Today the Treasury Department gave notice that it will empty its 300 million dollar position in the company by early next year. This has resulted in the slight slump GM is experiencing today (-1.5%). This is because since the treasury has committed to selling stock, traders will be able to wait a while and purchase them at a lower price as a supplier tries to unload inventory. After the treasury has dumped its positions the stock should climb back up as investor expectation in the company is more positive – the company has been showing growth since its crisis and has generally been rallying from lows last summer. 

All seems to be going well for GM, the government is showing confidence in the market by taking its hand out of Detroit’s pockets. The Treasury sale announcement came shortly after GM’s sales rose 9.4% in China. GM sold just fewer than 3 million units in China last year, beating out Toyota and Volkswagen. This Meanwhile in the States, GM will maintain its title as number one car manufacturer from the S&P 500 Index. This index welcoming should complement the sale well, as funds and firms that follow the Standard & Poor’s will need to purchase GM in order to maintain a balanced portfolio.

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