Skip to main content

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.

Comments

Popular posts from this blog

FED Rate Hikes Could Cause Unintended Volatility Shock

Last week the Federal Open Market Committee surprised no one when they raised rates 0.25 basis points to increase rates to between 1% and 1.25%.  What did surprise the market, was the revelation that the FED is committed to normalize rates, even if inflation does not meet their target.  This was reiterated this week in a speech by William Dudley, President of the Federal Reserve Bank of New York, who stated he feels the FED needs to raise rates, despite low inflation, to be ready to act if the economy does slow down.
The market has been quick to respond, and nothing was hit harder by a reduction in inflation expectations than commodities.  Gold, since the announcement, is lower by 2.39%, and oil is down -3.18%.  Crude futures have broken their upward trend line and appear poised to test the previous low of $39.56.
While, oil has been under pressure all year, the S&P 500 does not seem to care, as it continues to make all-time highs.  Oil is down 23% year to date, while the S&P…

Gold and Treasuries Say “RISK OFF”, But VIX Says "RISK ON"

Today we are seeing a modest rebound in the market after yesterday’s small selloff.  Volatility remains extremely low, with the VIX hovering around 10.  It’s important for traders to recognize how low the VIX has been lately.  Since 2010, the VIX has only closed below 10 five times, and each of those five times has come in the last month.                   However, the market is not without risks right now.  Gold has rallied 6.5% since May 9th.  Treasuries have rallied, pushing rates to below 2.15.  So, the market is currently in a risk off mode while equities are in a period of historically low risk.  The VVIX (the VIX of the VIX), for its part, is not sounding the all clear signal, 87 is in the medium range for VIX volatility.  Tomorrow we have a potential market moving event with James Comey’s testimony to Congress.  The last time Comey’s name was in the news, we saw the VIX move from 10.5 to over 15 in one trading day (a 50% increase) on a day where the market was down over 2%.  …

Markets Soft without Stimulus

Markets around the world pulled back the reigns as central banks look to taper quantitative easing. Japan’s central bank decided to leave their current pace of monetary policy unchecked, which has effectively cut the Nikkei down 1.5% on the day, affecting nearly every market in-between, scaring the DJIA 165 points off the start this morning. US Treasuries have now notched the highest yield in 14 months on the 10 year note.

This morning 55,257 EEM July 35 puts were purchased by a trader for $0.29 each, costing him a large $1,602,453. This is a bearish move on the Emerging Markets ETF, with expectations that by the July expiration, the price of EEM will dip below $34.71. EEM opened today at $39.32 and if this trader was to pass the breakeven point, the ETF would have to drop by more than 11.7% within a little over a month.

EEM opened today 1.9% lower than its closing price yesterday and since the 52-week high the ETF experienced in early January, it has lowered by over 13%. While this …