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

I would like to bet ten tens on the tenth horse in the tenth race, please.

"I would like to bet ten tens on the tenth horse in the tenth race, please."


Last summer, on a warm cloudy day June 11, 2016 in Elmont New York, a good friend of mine (Rob) confidently walked up to the cashier at Belmont and spoke those famous words.  Ten Tens on Ten in the Tenth Race.  In fact, it had been decided it months earlier. We had been discussing hosting his bachelor party in New York, go to the Belmont Stakes, and watch a Yankees vs Tigers game and Rob convinced the group to go to New York by proudly proclaimed his prophecy.  I had almost forgotten about this bold prediction when I witnessed him at the register, but when I looked up, and saw Flintshire, the 10th horse in the race upcoming race was the favorite.  “What could possibly go wrong?”  I thought to myself (an options trader who bought a racing program attempting to handicap and gain an ‘edge’ in the previous nine races unsuccessfully).  I went to a pretzel vendor and changed 5 twenties into ten tens, wal…

Is the KCJ Foreshadowing a 2008 Repeat?

The CBOE Correlation Index (KCJ) is close to the lowest level we have seen since it was first listed in 2007. The KCJ measures the implied movement of the S&P 500 components options, compared to the implied movement of the S&P 500 index options. Simply put, the higher the number, the more likely all stocks are going to move together. Conversely, a low number will be characterized by sector rotation, and flat markets; one sector moves higher, another moves lower. 
Correlation, for lack of a better term, is correlated with volatility. Not surprisingly, 30-day S&P 500 historical volatility is near the low level of 6.5%. Currently at 33.5, KCJ is sitting close to rock bottom, lower than where it was in 2007, (but not lower than where Lindsay Lohan was in 2007). 
So far this year, the market has been able to grind higher, characterized by leadership in FANG(Facebook Apple/Amazon, Netflix, Google) and sector rotation. As the summer hit, FANG has slowed with GOOGL and AMZN hitting…

The market should take Trump seriously this time.

Kim Jung-Un gave the U.S. an unwelcome birthday present as he test launched an ICBM capable of reaching Alaska.  North Korea has made it very clear that their intention is to grow their nuclear capability to be able to reach the Continental United States.  This would destabilize the region, and world overnight.
Now I don’t expect the war drum beating will spill over into mortar shells raining down on Seoul anytime soon.  There has been a choreographed diplomatic dance going on for the past 40 years with North Korea that is likely to continue as follows; North Korea acts out, U.S. gets upset, U.S. sanctions them (with help from China).  North Korea gives up their acting out activity (promises they won’t do it again), a North Korean South Korean gesture of goodwill takes place, such as joint Olympic teams, joint economic projects, North Korea gets to declare victory.
However, this go around seems slightly different.  Now we have a President who has made it very clear in his campaign tha…