Bulls driving profits in $GM

Option traders are driving big profits on upside positions in General Motors (GM) on New Year’s Eve.

On Dec. 31, Market Rebellion’s Unusual Activity tracking systems found that 10,600 January $44 calls were bought for $0.39 to $0.55 with shares at $41.62. This was clearly fresh buying, as open interest in the strike was only 4,061 contracts before the activity appeared.

Those calls have traded up to $6.87 today, well over 12 times their purchase prices. The stock rose 21.96% in the same time frame, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

GM was higher this session by 1.9% to close at $48.73. Barclays raised its price target on the shares to $56 from $49 this morning.