GM shares could plunge another 13% in a month, bets options trader

CNBC 2 months ago

The strike by General Motors employees is in the middle of its fourth week, and the company's stock is starting to feel the pressure.

Over the last month, GM shares are down a whopping 14% as employees and management battle over higher wages and increased job security; as long as the two sides continue to fight it out, the automaker's stock is likely to continue its plunge.

As Dan Nathan, co-founder of Risk Reversal Advisors, pointed out Tuesday on "Fast Money," one options trader is betting on those battles to continue for at least another month.

"The trade I want to focus on looked to be a bearish roll from January 2020 to the November 33-puts 10,000 times," Nathan said. "It looked like an opening buyer in the November [30-puts]."

This trader paid 38 cents for each one of these contracts, meaning that this trader is making a $380,000 bet that General Motors will plunge at least 13% from Tuesday's close, or down below $29.62.

From a technical standpoint, Nathan sees signs that a breakdown to that level could very well happen.

"If you look at this move we've had over the last month, down about 15%, it places GM's stock right below that uptrend that has been in place since the December lows," Nathan said.

The stock has, indeed, already seen a peak-to-trough decline of more than 15% during that time, but if the strike continues through November, GM is in danger of breaking a much more significant technical trend.

"Since 2010 when the stock re-IPOed, you see that uptrend that has been in place from the 2012 lows. We're getting close to there," Nathan said.

"This one is in a precarious technical spot, and we don't know what the result's going to be. We know, in a month or so, this company is going to report earnings, and if they don't have any solution to this strike, it's going to be a dire outlook going forward."

GM was trading slightly higher in Wednesday's session.


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