Monday, January 3, 2011

Goldman tips GM to 43

GS 1 (2) -

And Morgan Stanley tips GM also:

To trade what Patel calls the rebirth of GM, J.P. Morgan's equity derivatives strategists are advising clients to buy GM's March $38 calls for $1.55 and sell Ford's March $17 calls for 91 cents. They call the strategy a "call switch" though it is a derivative version of the classic pairs trade long used by investors used to take advantage of perceived pricing irregularities among related stocks.

In a pairs trade, an investor buys the stock of a company perceived to be undervalued, and shorts -- sells the stock in anticipation its price will decline -- the company believed to be overvalued. If all goes as planned, the stock that is bought increases in value and the shorted stock declines.