Investors lifted shares of automaker General Motors Co (GM) after the company reported fiscal fourth-quarter earnings. Analysts had previously expected GM to report earnings per share (EPS) of $1.15 and revenue of $34.24 billion – the company reported EPS of $1.35 and revenue of $33.58 billion. Instead of restoring its dividend, GM plans to use the savings to accelerate or even increase its $35 billion investment in electric and self-driving vehicles through 2025.

GM shares are down 10 percent in 2022 after rising 40 percent in 2021. The company posted record profits in 2021, even though chip and parts shortages forced the temporary closure of several plants throughout the year. Its global sales fell, down 18 percent from pre-epidemic sales in 2019. GM expects chip supply to improve this year, but gave conservative guidance for full-year 2022 sales and profits.

Options traders see a decline in GM stock prices going forward in the near term. This is due to the recent shift in options order sentiment from bullish to bearish as the stock price declines in 2022. Implied volatility suggests that traders are selling call calls while buying put puts, even though there are more calls than puts in open positions.

Key Points

  • Traders and investors alike have been lowering GM’s stock price recently.
  • Based on historical volatility, GM shares recently closed in a below-average range.
  • The automotive industry has been dealing with supply chain constraints, particularly in the area of semiconductors.
  • GM has outperformed its industry, but has lagged the market since the beginning of the year.
  • Support and resistance levels based on historical volatility allow for greater upside.

Automotive industry comparison

GM's recent sales decline has led the company to relinquish its position as the No. 1 automaker in U.S. sales, a position it has held for nearly a century. The company could surpass rival Ford Motor Co (F) in market capitalization, which would make GM one of the top three automaker stocks by size, behind only Tesla Inc (TSLA) and Toyota Motor Corp (TM).

Over the past month, every one of these companies, with the exception of Toyota, posted negative returns. The chart below compares GM's recent performance with the top 9 automaker stocks by market capitalization and KraneShares' Electric Vehicle and Future of Mobility Index ETF (KARS).

Compare GM, Top Automaker Stocks by Market Cap and KARS

Notable on this K chart is that electric vehicle stocks like Tesla, Nio Inc. (NIO) and Lucid Group, Inc. (LCID) have outperformed their gas-centric peers, but that changes as 2022 progresses. Sitting among the best performers among automakers are industry stalwarts Toyota and Honda Motor Co.

KARS is an exchange-traded fund that holds shares in global publicly traded companies that generate substantial revenue from electric vehicles, energy storage technology, autonomous navigation technology, lithium and copper mining, and hydrogen fuel cells. General Motors is one of the ETF's largest holdings, as the company has been aggressively campaigning to capture market share in electric vehicles, as evidenced by the company's decision to accelerate spending in this area.

The auto industry has been hit by supply chain constraints due to the COVID-19 pandemic and an established chip shortage. This chip shortage is believed to be the No. 1 reason GM lost its status as the largest U.S. automaker The chart below compares GM to Tesla, KARS, State Street's Non-Essential Consumer Goods ETF (XLY) and iShares' Semiconductor ETF ( SOXX).

GM vs. TSLA, KARS, XLY and SOXX

This K-line chart is very compelling because it includes KARS as well as Tesla's top electric car maker and possibly the biggest problem plaguing current car manufacturing via SOXX (chip shortage). Automakers are considered part of the non-essential consumer goods industry, which is often considered an underperforming sector in times of inflation, as consumer spending focuses more on demand than need. Notably, despite facing multiple headwinds – chip shortages, industry rotation, lack of revenue – GM's stock has continued to outperform the rest of the stocks on this K chart since the beginning of 2022.

Price volatility and options outlook

Comparing technical analysis of stock price action with recent options trading activity provides K chart watchers with insight into the overall sentiment towards GM stock ahead of earnings announcements. The chart below illustrates the recent price action in GM stock as of Thursday, February 3.

GM's recent price trend

This K-line chart illustrates the movement of GM stock since the company reported earnings for the previous quarter. After the third quarter earnings report, GM stock rose to the very high end of the range, as shown by the green arrow on the far left. After trading within the average range around the 20-day moving average, GM stock rose again to the very high end of that range at the end of 2021, highlighted by the green arrow. Since early 2022, GM stock has fallen to the extreme lows of the range, highlighted by the red arrows. GM stock is up 2.5% after earnings, but remains in a below-average range with a recent close below the 20-day moving average.

The purple band on this K chart is the extreme historical volatility range formed by the 4 standard deviations of the 20-day Keltner Channel indicators, which depict price levels representing multiples of the Average True Range (ATR) for GM stock. ATR is a standard tool used to illustrate historical volatility over time. These bands can be thought of as representing the extreme ranges of option pricing.

It is worth noting that these bands narrow as the price rises and widen as the price falls. These bands are currently at the widest of any point on the K chart, indicating that options traders may expect GM stock to fall further.

At first glance, options trading volume and open interest appear to be bullish. This is due to recent trading volume of 78,000 calls versus 43,000 puts and open interest of over 1 million calls versus 694,000 puts. While at first glance these numbers appear bullish, further analysis provides key details.

For the next monthly expiration date of February 18, the single highest position is a $65 call option with $37,000. This represents a 22% upside to GM's current stock price. The second highest open position is a $50 put option with 30,000. This represents a much higher probability of a 5% decline in GM's current stock price.

While the raw data looks bullish, the implied volatility indicates that traders are selling calls and buying puts. This is because the implied volatility of the upside calls is falling while the open positions are rising, which indicates that traders are selling these options. The implied volatility of the downside puts is rising, while the open positions are rising, which means that traders are buying these options.

Summary

The auto industry recently faced significant headwinds, particularly a chip shortage that hindered production. GM overcame this challenge to achieve record profits, but relinquished its position as the No. 1 U.S. automaker. While investors bought shares on the same day the company reported earnings, options traders appear to be selling calls and buying puts, meaning they see further declines storing GM's stock.