Options traders bet on a big turnaround when GM reports earnings

Options traders are betting that GM shares will hit the gas when the automaker reports earnings before the bell Wednesday morning.

The stock has been stuck in a rut as of late, trading sideways since mid-March, and falling nearly 10% from its June highs. However, the majority of Monday's options activity in GM pointed to this week's earnings report as a potential turnaround catalyst.

"We saw calls outpacing puts by a little more than 3-to-1, although I would point out that over the last 20 days, the flow has generally been pretty bullish," Optimize Advisors CIO Michael Khouw said Monday on CNBC's "Fast Money."

Khouw also noted that the market is implying a larger-than-average post-earnings move in the stock of more than 5% in either direction by Friday's close. If that move pans out on the bullish end, it would take a significant chunk out of GM's recent losses, and many traders are betting that the stock could do exactly that.

"The most active options [Monday] were the weekly 58-strike calls," said Khouw. "About 6,000 of those traded for about $1.40 each. Buyers of those calls are obviously betting that the news could be good, and the stock could go through that $58 strike price by at least the $1.40 that they paid."

Those calls break even at $59.40 and expire when the market closes on Friday. Given how GM has traded so far in Tuesday's session, that breakeven is already more within reach than it was at Monday's close.

GM was trading about 1.5% higher in Tuesday's session.

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