GM June 1 Calls

Discussion in 'Options' started by VoodooMMI, May 27, 2009.

  1. I'm bearish on GM, so on 2009 05 27 I shorted some GM June 1 Calls at $0.34. I would have liked to just shorted the stock but I can't get any borrow, so I thought this was the next best thing. I've heard that current shareholders will receive 1% of the new GM stock, assuming the company files for a bankruptcy reorganization. Has anyone heard that current shareholders would receive anything different?
  2. heech


    Is it already known that GM will exit bankruptcy before option expiration on June 19th...?

    Just curious how that plays into it.
  3. it would be completely different stock that you would receive. if you think a massive gm bankruptcy would be done in 3 weeks.
  4. They haven't even gone INTO bankruptcy yet. Hard to imagine GM leaving BK before July.

    I would go so far as to say AUG would be lightning fast.

    to the OP, There are a couple of things that I could think of that would upset the apple cart for you (I have been looking to do the same thing)

    One is that the price is able to maintain above $1 and you end up short the stock which your broker then says is not available and your forced to cover at whatever price. If the current price is over 1.34 your a loser on this trade.

    Another way is that the new stock gets priced at over $100 (assuming that the planned reverse stock split of 1 for 100 happens) you could end up a loser as well.

    I have been watching the $1 calls somewhat this week and I have noticed that they are trading (when I was looking at them) for ZERO premium in both time and IV. That means there is a lot of sellers willing to sell based on the idea that you and I have looked at.

    Any edge from this trade appears small to me

    Best of trading to you both

  5. spindr0


    I don't think it really matters whether they're in or out of bankruptcy by a certain date. What matters is how the events are perceived and whether the stock rallies or fades. So remember to dance near the door just in case :)
  6. heech


    Not in this brave new world... Chrysler went into bankruptcy at the beginning of this month, and might possibly be "out" in the next few days.

    As to why this might be relevant... I can't figure out *what* drives GM stock value until the "good" GM is unveiled and we have some assets + earnings attached to GM stock. Until then, just seems like a random crap shoot what GM trades for on any given day.
  7. DETROIT, May 28 (Reuters) - General Motors Corp (GM:$1.282,0$0.132,011.48%) and the U.S. Treasury on Thursday made an improved equity exchange offer to bondholders with $27 billion in debt intended to pave the way for a quick bankruptcy process for the automaker.
    Under the proposed deal, which GM said was supported by creditors representing about 20 percent of its debt, bondholders would be offered 10 percent of a reorganized company and given warrants to purchase another 15 percent.
    In exchange for the improved payout, creditors would agree not to oppose a move to sell GM's profitable assets to a new company funded by the U.S. government in a fast-track bankruptcy process.
    The exchange offer will be open to bondholders until 5 p.m Saturday EDT (2100 GMT) , GM said.
    The U.S. Treasury would own 72.5 percent of the new GM coming out of a bankruptcy sale process, while a trust affiliated with the United Auto Workers union would own 17.5 percent, GM said in a filing with securities regulators. (Reporting by Kevin Krolicki, editing by Gerald E. McCormick)
  8. past June exp bankrupcy trade :

    buy Jan10 2.50 put for 2.16
    sell June 1 strike put for 54c
    for 20c max loss

    sell 1 strike again in July
  9. There's also a provision for 2% equity in New GM going to Old GM under certain conditions. Which of course adds up to 102%, which is a great way to start off a new enterprise.
  10. This still looks like a good trade to me. Today, June 1st, GM formally applied for chapter 11 protection. Stock is trading around 89 cents. 2 possibilities around the June expiration. Stock below $1, calls expire worthless. If GM is above $1, then roll the short call position to July. Eventually GM will exit chapter 11 protection and the old GM shares will be canceled and worth zero. Of course, until that time, GM could continue to run up, $2, $3, $4, etc. Which is why you have to have a small position so that you can have staying power. But, it seems that GM bears have all the cards stacked in their favor.

    Since debt holders are in line in front of equity holders in a reorganization, and since debt holders are not being made whole, I don't see how equity holders could be given any part of the new GM. Can anybody give a scenario where holders of old GM equity get something of value in the new GM?
    #10     Jun 1, 2009