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Bulls take the driver's seat in GM

David Russell (david.russell@optionmonster.com)

General Motors has been breaking out amid strong auto sales, and bulls piled into the name yesterday.

optionMONSTER's Heat Seeker program tracked a flood of activity in GM, with more than 530,000 contracts changing hands by the closing bell. That was 15 times average volume and made General Motors the second-busiest company in the option market behind only Apple. It normally doesn't even make the top 10.

Short-term trades were the first to stand out, with the Weekly 36 calls expiring this Friday purchased for $0.07 to $0.22. The Weekly 37.50s expiring on June 27 also hit for $0.19 to $0.22.

Long calls lock in the price where the auto maker's stock can be purchased, letting investors cheaply position for a move higher. The contracts can also generate significant leverage if shares move in the right direction, which is precisely what happened yesterday . (See our Education section)

GM was up less than 2 percent at the time but continued to push higher and ended the session up by 3.57 percent at $36.52. The Weekly 36 calls inflated to as much as $0.90, and the Weekly 37.50s more than doubled to $0.46 in the thick of the action.

In another major transaction, an investor bought 33,692 September 39 calls and sold an equal number of September 42s for a net cost of $0.64. That bullish call spread will earn profit of more than percent if the stock runs back to its December peak near $42 by expiration. Another 18,000 of the September 39s were bought outright throughout the day.

(A version of this post appeared on InsideOptions Pro yesterday.)

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