Trader bets $1 million on General Motors rebound

U.S. auto stocks are stuck in reverse. Shares of General Motors were flat Friday but tumbled Thursday after Barclays downloaded the stock and sector from neutral to negative, citing disappointing sales from China. Read MoreVW, GM shudder as China profit engine sputters The stock is now down nearly 17 percent in just the past three months, Despite the troubles, one trader is betting that better times are ahead. On Thursday, when GM shares traded at their lowest level since October and options volume ran more than twice its daily average, one trader bet $1 million that the stock could rally nearly 10 percent through the end of the year. Specifically that trader purchased 8,000 of the January 32-strike calls for $1.25. Since buying a call allows a trader to purchase a stock for a set cost at a given time, this trade makes money if GM shares rise above $33.25, or 9 percent, by January expiration. And options sentiment across the board appears to be quite optimistic, according to CNBC contributor Mike Khouw. "Another active strike was the 35 calls and what we saw there was people selling General Motors shares and buying options instead," Khouw said Thursday on CNBC's "Fast Money." "That's a good way to play for a rebound but limit your risk if there continues to be weakness in the sector." It appears Wall Street also thinks the stock could kick into high gear. Of the 17 analysts surveyed by FactSet, the average price target is $41.93 with an overweight rating. The company is set to report second quarter earnings before Thursday before the opening bell. At midday Friday, shares of General Motors were trading at $30.70, up 0.31 percent.

Amanda Diaz

Source: http://www.cnbc.com/2015/07/17/trader-bets-1-million-on-general-motors-rebound.html