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General Motors (GM) stock may have bottomed out recently, but its out-of-the-money (OTM) put options premiums are still high. These premiums can provide a 2% or higher yield to short sellers.
GM is trading at $52.04 in morning trading on Tuesday, March, up from its recent low of $45.22 on March 4. I discussed GM's value in a Feb. 28 Barchart article, “General Motors' Huge Dividend Hike and Buybacks - Value Investors Love GM Stock.”
Value investors are looking closely at GM stock, given its recent 25% dividend hike and huge buyback announcement. The article will delve into a play that allows investors to make 2.0% monthly yields shorting OTM puts.
Value of GM Stock
The article argued that the GM stock's value could be significantly higher. Right now, GM stock has a 1.1% dividend yield: $0.60 dividend per share (DPS) / $52.00.
However, given its average 0.93% dividend yield over the last 12 months, GM stock could be worth 24% upside. Here's why:
$0.60 annual dividend per share (DPS) / 0.093 avg yield = $64.52
That provides investors with a potential upside of at least +24.2%. It assumes that the stock will rise to the point where its average yield is 0.93%.
Even with a 1.0% dividend yield, its value would be $60.00 (i.e., $0.60/0.01), or +15.5% higher.
Analysts tend to agree. For example, Yahoo! Finance shows that the average sell-side analyst (29) has a price target of $61.81 per share. That is up from $59.99 a month ago, as reported in my article. Similarly, Barchart's mean survey price target is up from $57.91 to $60.04.
The bottom line is that GM stock could be worth more. But there is no time frame for this to happen. One play to secure value now is to set a lower buy-in price by selling out-of-the-money (OTM) put options in one-month away expiry periods.
Shorting OTM Puts
For example, the April 25, 2025, expiration period, 31 days to expiry (DTE), has attractive put option premiums. The $49.00 strike price put contract, which is over 5% below today's price, has a midpoint premium of 87 cents.
That presents a short-seller of these puts an immediate 1.77% yield (i.e., $0.87/$49.00 = 0.01775).
Moreover, the $50.00 strike price has a premium of $1.17, or 2.34% (i.e., $1.17/$50.00 = 0.0234) for a short-seller. The point is that a mixture of these two plays could provide an investor a solid 2.0% yield over the next month.
Keep in mind that there is no guarantee GM will stay over $50.00 or $49.00 on or before April 25. In that case, the investor's collateral (since these are cash-secured put plays) will be assigned to buy 100 shares per contract shorted.
That could result in an unrealized capital loss. However, in that case, the investor owns shares in GM at a lower buy-in price. In fact, the breakeven point for the $49.00 short-put play is $48.13, or 7.5% below today's trading price.
That allows the investor to make an annual dividend yield of 1.25%, well over its average 1.0% yield over the last 2 years. Moreover, if the investor can repeat this play each month, the annualized expected return is over 24% annually (i.e., 2.0% x 12 = 24% before compounding effects).
Investors should study the downside risks. One way to do this is to research Barchart's Options Education pages, such as the Options Learning Center and Options Assignment tabs.
The bottom line is that GM stock looks attractive here. One way to play this to make a good yield with potential upside is to sell short out-of-the-money (OTM) put options in one-month out expiry periods.
