General Motors Co. call buying in high gear as shares extend rally

General Motors Company (NYSE:GM) – Shares in the largest U.S. automaker are popping on Wednesday after the company reported third-quarter earnings that handily beat analyst expectations. The stock is up better than 8% just before midday in New York to stand at $25.15. Traders expecting shares in GM to extend gains heading into the weekend snapped up weekly calls that have two full trading sessions remaining to expiration. The most active weekly calls are the Nov. 02 ’12 $25 strike contracts, which have changed hands more than 2,800 times against open interest of 369 lots. It looks like most of the $25 calls were purchased earlier this morning for an average premium of $0.22 per contract, thus positioning buyers to profit should GM’s shares exceed the average breakeven price of $25.22 at expiration this week. Intraday gains in the price of the underlying have benefited early-bird call buyers, with premium on the $25 strike contracts now up more than 115% since this morning to arrive at $0.48 per contract. Meanwhile, options players who purchased upside calls at the end of last week are seeing substantial paper profits on their positions today. Bullish traders appear to have purchased around 1,000 calls at the Nov. 02 ’12 $23.5 strike for an average premium of $0.48 apiece last Friday. Today these deep in-the-money call options are changing hands at around $1.70 each as of 12:00 p.m. ET, a more than three-fold increase in value.

General Motors Company (NYSE:GM)

Petroleo Brasileiro Petrobras SA (NYSE:PBR) – Bearish traders are bulking up on short-dated put options on Brazilian oil and gas company, Petrobras, this morning, with shares in the name down more than 5.2% at $21.21 on Wednesday. Buyers of put options with two full trading sessions to go before expiration appear to be positioning for shares in the world’s largest deep-water oil driller to extend declines. Traders positioned to potentially profit from further selling pressure in PBR shares purchased around 1,600 of the Nov. 02 ’12 $21 strike put for an average premium of $0.23 apiece this morning. Strategists long these options start making money on the downside if Petrobras shares slide 2% from the current level to breach the average breakeven point at $20.77 by expiration. The $20.5 strike weekly puts also attracted one or more buyers of around 220 contracts for an average premium of $0.06 each in the early going. Petrobras shares remain pressured following the company’s weaker-than-expected third-quarter earnings report released late on Friday last week.

The Walt Disney Company (NYSE:DIS) – Entertainment and media giant, Walt Disney Co., announced Wednesday it agreed to purchase Lucasfilm, Ltd. from sole owner, George Lucas, for $4.05 billion, sparking heavier-than-usual activity in options covering the stock. Shares in Disney are currently down 2% to arrive at $49.00 as of 12:45 p.m. ET. One transaction in the January 2013 expiry call and put options appears to be a sizable bullish bet that shares in the name will rebound off the current level during the next few months. It looks like one strategist sold 5,000 puts at the Jan. 2013 $48 strike for a premium of $1.44 apiece in order to offset the cost of buying 5,000 calls up at the Jan. 2013 $50 strike at a premium of $1.69 each. The position cost a net premium of $0.25 per contract and starts making money if shares in DIS rally 2.6% over the current price of $49.00 to surpass the effective breakeven price of $50.25 by January expiration.

Caitlin Duffy

Equity Options Analyst

The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.