Since there are suddenly 50 million new shares hitting the market, this trader is expecting the stock to stay stagnant or increase in value slightly, but not to rise above $36. This call is very likely being sold against a long stock position.
In that case, this trader will collect the entire premium from selling the call if the stock stays below $36, but is losing the right to capture any gains above $36.
(Read More: US Treasury to Sell 30 Million More GM Shares)
The Treasury gave notice that it will sell out of its $300 million position in the company by early next year, which has resulted in the slight slump that GM is experiencing on Wednesday.
This makes perfect sense—since the Treasury has committed to selling stock, traders figure that they will be able to wait and purchase the shares at a lower price as a supplier tries to unload inventory.
After the Treasury has finished dumping its position, the stock should climb back up. After all, investor expectations in the company have become more positive, given that GM has been showing growth since its crisis, and has generally been rallying from lows made last summer.
(Read More: GM Finally Turns the Corner With Investors)