Interesting day on GM

Today was obviously an interesting day to see on GM and F and the not-listed Chrysler.

The news started to unfold at 9am, when President Bush announced the bailout plan for the Big Three (Big Two rather, since Ford is not asking for money), and the market reacted extremely positive at pre-market, when share price went up as high as 4.80 at one point of time.

Then market opened and within minutes, the share price fell back like free fall before coming back to 4.20 and stayed there for pretty much the rest of the day, and shot up to 4.47 right before the end of the day.

The day was particularly interesting as today is the expire date of all stock options expiring in December, and the market is definitely more volatile than usual despite the fact that it was trading at positive territory for the whole day.

First, my condolence to those owner of the put options, or those who wrote calls. The 3- and 4-dollar strike puts were virtually worthless, if the announcement were made a couple of days ago, there was still a chance of profiting from those puts, but unfortunately Bush just happened to announce it on the exercise day.

What surprised me, in this case, is all those shorters? Don’t they need to cover their positions ASAP? And why the stock is not shooting up as the short interests was almost 50% of the market cap?

Look at Citigroup, their shares were traded at 4 region, but went up to as high as 8.5 after the bailout. Why not GM and F?

My only guess is that the shorters have either shorted early enough to get a really good price, or they simply do not want to realize the loss and hope the price would bounce back a little or hold the short position till March and see if GM and Ford could turn in a reasonable rescue plan to restructure themselves.

However, today’s trading was by no means a good indicator of the perception of investors, since lots of options were exercised right before the market was closed (look at the last five minutes), the real reaction from the market to the bailout package would be in on Monday, when the regular trading resumes.

By then, hopefully the market will react more rationally to the news.