Option Trade: After Reclaiming Key Moving Averages, Will GM Soar?

TL;DR

Learn how to utilize a bull call spread option strategy for a bullish trade in GM.

Transcript

[Applause] hey traders for today's strategy we're going to take a look at a bullish option trade in gm the stock had a very bullish close yesterday and is back above its key 21 day and 50 day moving averages implied volatility on gm is around 30 which is the lowest level we've seen in the last 12 months this means that an option on gm is cheaper co... Read More

Key Insights

• 🔐 GM stock had a bullish close and is above key moving averages.
• 😘 Implied volatility in GM is currently at its lowest level in the last 12 months.
• 🚄 A bull call spread is a risk-defined strategy that can be used for a bullish trade.
• 😘 Low implied volatility makes options cheaper for buyers compared to historical prices.
• 🚄 The cost of a bull call spread in GM is approximately $145, with a maximum profit potential of around $355.
• 🌸 The maximum loss in a bull call spread is the premium paid for the trade if the stock closes below the lower strike price.
• 👻 Bull call spreads allow traders to gain bullish exposure to the stock using options.

Questions & Answers

Q: How can the low implied volatility of GM benefit option buyers?

Low implied volatility in GM means that options are cheaper compared to prices in the last year, making it advantageous to be an option buyer rather than a seller.

Q: What is a bull call spread option strategy?

A bull call spread involves buying a call option and simultaneously selling a higher strike call option. This strategy reduces trade cost but limits potential upside.

Q: What is the risk with trading a bull call spread?

The maximum loss in a bull call spread occurs if the stock closes below the lower strike price. In this case, the maximum loss is the premium paid for the trade.

Q: When would it be advisable to close the trade early for a loss?

If GM stock drops below $56, it would be wise to consider closing the trade early for a loss to avoid further potential losses.

Summary & Key Takeaways

• GM stock had a bullish close and is above key moving averages, with low implied volatility, making it favorable for option buyers.

• A bull call spread is a risk-defined strategy created by buying a call and selling a further out-of-the-money call, reducing trade cost but limiting potential upside.

• In this trade, buying the GM 58-59 call and selling the 63 call can yield max profit potential of $355 with a cost of approximately $145.