Follow Up to Trade Alert - (GM) July 3, 2014
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.
Further Update to: Trade Alert -(GM)
Buy the General Motors (GM) August, 2014 $33-$35 in-the-money bull call spread at $1.79 or best
Opening Trade
7-3-2014
Opening Trade
expiration date: August 15, 2014
Portfolio weighting: 10%
Number of Contracts = 56 contracts
?
It is safe to say that all of the bad news is finally in the price at General Motors (GM). In the wake of the latest batch of recalls this week, the total number of recalls now equals virtually all of the company?s production of the last five years.
Woe to the outside supplier who provided those faulty, but cheap ignition switches to the beleaguered company!
What is more important ace mediator, Kenneth Feinberg, has finally come up with a number to offer the grieving families of the 17 who were killed driving GM?s deathtraps of yore. A fatality is now worth $1 million, and the company is offering as little as $20,000 for lesser accidents.
GM should put these numbers on their new car stickers.
In all honesty, this is just a ?feel good? gesture. The company that is actually responsible for these deaths went bankrupt in 2009. The new GM bears no legal liability whatsoever.
However, the company needs to preserve the value of its brand. The GM logo still goes out with every vehicle the firm manufacturers. So, it will do the right thing for these victims.
Even if you apply these numbers to the much higher number of deaths claimed by plaintiffs? lawyers, more than 88, the total liability will not be enough to put a substantial dent in GM?s earnings. It is really just sofa change for them.
Many of the higher figures include drunken driving deaths and fatalities of those driving at high speed without seatbelts. But every law school graduate out there is gunning for a piece of the action. Don?t you just love America!
So all of this bad news is really good news in disguise. This will enable GM shares to catch up with those at Ford and Toyota, which have been on a tear this year. The industry seems poised to reach annual production of 17 million in 2014, an eight-year high. This will be great for profits for everyone.
I knew as much a few weeks ago, when I learned of massive insider buying of stock at GM all the way down to the middle management level. As has so often been the case this year, I waited for a dip that never came.
Now that the upside breakout is undeniable, I have to jump in. The shares are starting from such a low base that even if a 5%-10% correction comes, the August, 2014 $33-$35 in-the-money bull call spread should be able to weather the selling.
I can also use this position to hedge my short in the S&P 500 (SPY), with which I am feeling a small amount of heat.
Things are not so good that I am going to run out and buy a GM tomorrow. I am happy with my Tesla Model S-1, thank you very much.
Keep in mind that the options market is highly illiquid now, so don?t hold me to these prices. They are ballpark estimates, at best. I?m just trying to point you in the right direction. If you want to play with the strikes and the maturities, that?s fine with me.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don?t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
If the price of this spread has moved more than 5% by the time you receive this Trade Alert, don?t chase it. Wait for the next one. There are plenty of fish in the sea.
Here are the specific trades you need to execute this position:
Buy 56 August, 2014 (GM) $33 calls at?????$4.90
Sell short 56 August, 2014 (CAT) $35 calls at..??.$3.11
Net Cost:??????????????????.....$1.79
Potential Profit: $2.00 - $1.79 = $0.21
(56 X 100 X $0.21) = $1,170 or 1.17% profit for the notional $100,000 portfolio.
